Assume that you are the new CEO of a major corporation that has five major product lines each run as separate corporations
You discover that if you invested the company's money outside of the firm that it could earn a 15% rate of return on the investment. You tell all the presidents of each of these subsidiary companies that in order for them to remain with the company that their return on capital must equal to or exceed 15% rate of return. Use two economic principles discussed in chapter 1 to explain why the CEO's advice is sound.
Essentially there is a high opportunity cost associated with investing large sums of money in a corporation when the rate of return is higher if invested elsewhere. By getting the presidents of each of the subsidiary companies to push the rate of return on their capital upwards the stockholder's money is being more efficiently managed.
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Which of the following taxes is most clearly based on the benefits-received principle of taxation?
a. corporate income tax b. gasoline tax c. personal income tax d. payroll tax e. value added tax
Bank lending and deposits tend to change as interest rates change. Can the Fed counteract this tendency?
a. Yes, through its ability to affect the money supply. b. Yes, through its ability to change tax levels. c. No, the Fed is forbidden by the Constitution from intervening in the economy. d. No, the Fed almost always follows a passive monetary policy.