Why did the principal-agent problem for investment banks become more severe following the repeal of the Glass-Steagall Act in 1999?
What will be an ideal response?
Congress repealed the Glass-Steagall Act in 1999, after which some commercial banks began engaging in investment banking. Traditionally, large Wall Street investment banks had been organized as partnerships, but by 2000 they had all converted to being publicly traded corporations. In a partnership, the funds of the relatively small group of owners are put directly at risk, and the principal-agent problem is reduced because there is little separation of ownership from control. With a publicly traded corporation, on the other hand, the principal-agent problem can be severe due to the separation of ownership from control.
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Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as a(n):
a. flattening of the curve. b. movement from one point to another point along the curve. c. outward shift of the curve. d. movement from a point on the curve to a point inside the curve.
If you fit a line through a scatter diagram of points that represent coordinates of consumer spending and disposable income, the slope of this line will equal the
a. propensity to consume b. variable propensity to consume. c. marginal propensity to consume. d. average propensity to consume.