Which of the following CORRECTLY characterize principals and agents in important examples of the principal-agent problem?
A) In the doctor/patient relationship, the patient is the principal and the doctor is the agent.
B) In the lawyer/client relationship, the client is the principal and the lawyer is the agent.
C) Both of the above answers are correct.
D) Neither of the above answers is correct.
C
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Suppose a judge is trying to decide whether, as a matter of fact, homeowners currently possess the right to prevent airplanes from flying low over their houses. The judge's ruling is correct if his decision results in
A) a fall in the market value of the houses. B) a rise in the market value of the house. C) no change in the market value of the houses. D) uncertainty about the market value of the houses.
When a permanent negative supply shock hits the economy, a permanently ________
A) lower equilibrium level of output ensues if the central bank raises interest rates B) lower equilibrium level of output ensues if the central bank does not respond C) higher equilibrium level of inflation ensues if the central bank does not respond D) all of the above E) none of the above