When Adam Smith Said Economic Activity Was Directed by an "Invisible

question 508

Multiple Choice

When Adam Smith said economic activity was directed by an "invisible hand," he was referring to the fact that

• A) competitive markets motivate altruistic individuals to pursue productive activities that only serve their private interests.
• B) when economic activity is directed by competitive markets, the actions of self-interested individuals will generally serve the public interest.
• C) invisible forces will lead to economic chaos unless wise central planning directs economic activity.
• D) scarcity is largely the result of invisible forces that would be eliminated if individuals were free to pursue their own self-interests.

Understand the concept of agency problems and potential solutions.

Acknowledge the importance of ethics in corporate governance and its impact on investor decisions.

Recognize the role of stakeholders in a corporation and the potential for conflicts of interest.

Understand the implications of financial decisions on a company's survival and profitability.

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Definitions:

Disposable Income

Income left for households to direct into savings and spending after deductions of income taxes.

APC

APC, or Average Propensity to Consume, is the ratio of total consumption to total disposable income, indicating how much income is spent.

Induced Consumption

The portion of consumer spending that changes in response to changes in disposable income.

Disposable Income

The sum of funds that individuals or families can allocate towards savings or expenditure once they've deducted income taxes.