Tobin's Q Theory Adds to Neoclassical Theory Because It ________

question 55

Multiple Choice

Tobin's q theory adds to neoclassical theory because it ________.

• A)illustrates the important relationship between tax rates and the incentive to labor
• B)emphasizes the role played by asset price fluctuations on investment spending
• C)highlights the impact of a tax increase on business investment
• D)underlines the relationship between financial innovation and the financial crisis of 2007-2009

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Definitions:

Economists

Experts or professionals who study, develop, and apply theories and concepts in economics to analyze how societies utilize scarce resources.

Monopoly

A market condition where a single firm has exclusive control over a product or service, eliminating competition.

Negative Externalities

Adverse effects suffered by a third party or the public as a result of an economic transaction or activity.

Principal-Agent Problem

At a firm, a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals’ (stockholders’) goals. In public choice theory, a conflict of interest that arises when elected officials (who are the agents of the people) pursue policies that are in their own interests rather than policies that would be in the better interests of the public (the principals).