Which of the Following Statements Is False

question 17

Multiple Choice

Which of the following statements is false?

• A) The substantial use of stock and option grants in the 1990s greatly increased managers' pay-for-performance sensitivity.
• B) The optimal level of sensitivity of managers' compensation to the performance of their firms depends on the managers' level of risk aversion, which is hard to measure.
• C) While decreasing managers' risk exposure, increasing the sensitivity of managerial pay and wealth to firm performance does have some negative effects.
• D) In the absence of monitoring, the other way the conflict of interest between managers and owners can be mitigated is by closely aligning their interests through the managers' compensation policy.

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Definitions:

Equilibrium Output

The level of production at which the quantity of goods produced equals the quantity of goods demanded.

Keynesian Approach

An economic theory proposing that government intervention through fiscal policies (spending and taxes) can affect the overall level of economic activity, stabilizing the economy.

Fiscal Policy

Government strategies used to influence economic conditions through spending and taxation.

Budget Deficits

The situation where a government's expenditures exceed its revenues, leading to the accumulation of debt.