Economics
Question 1
A. Identify each of the following as either a positive or a normative economic statement:
a. The high temperature today was 37 degrees.
b. It was too hot today.
c. Other things being equal, higher interest rates reduce the total amount of borrowing.
d. Interest rates are too high.
B. In order to attract Muro John to the position of CEO of GMO Tz Seed Company Inc. Muro is given the following package (a) a signing bonus of $200,000. (b) In addition to his salary Muro will be paid a bonus of $200,000 in any year that company return on assets exceeds 6.5%. Also (c) Muro receives 500 shares per annum of the stock, which he may not sell for 5 years. Comment on the likely effectiveness of each of these components of as a means to mitigate the principle-agent problem (you need to understand the meaning of this). Indicate which is the mostly likely chosen option and the least likely and reasons behind your answers.
Question 2
Kahima’s Incorporated anticipates the following earnings for the next 5 years.
|Years in the Future |Anticipated Profit |
|1 |22 |
|2 |24 |
|3 |26 |
|4 |28 |
|5 |30 |
| | |
Suppose
A. Identify each of the following as either a positive or a normative economic statement:
a. The high temperature today was 37 degrees.
b. It was too hot today.
c. Other things being equal, higher interest rates reduce the total amount of borrowing.
d. Interest rates are too high.
B. In order to attract Muro John to the position of CEO of GMO Tz Seed Company Inc. Muro is given the following package (a) a signing bonus of $200,000. (b) In addition to his salary Muro will be paid a bonus of $200,000 in any year that company return on assets exceeds 6.5%. Also (c) Muro receives 500 shares per annum of the stock, which he may not sell for 5 years. Comment on the likely effectiveness of each of these components of as a means to mitigate the principle-agent problem (you need to understand the meaning of this). Indicate which is the mostly likely chosen option and the least likely and reasons behind your answers.
Question 2
Kahima’s Incorporated anticipates the following earnings for the next 5 years.
|Years in the Future |Anticipated Profit |
|1 |22 |
|2 |24 |
|3 |26 |
|4 |28 |
|5 |30 |
| | |
Suppose