ECON/625 ECON625 ECON 625 WEEK 3 QUIZ 3

ECON 625 WEEK 3 QUIZ 3

  • Question 1
   
 

What term best describes the payment which must be offered to a risk-averse individual to willingly accept a gamble?

      
   

Answers:

A. 

Certainty equivalent
 

B. 

Risk premium
 

C. 

Risk preference payment
 

D. 

Certainty payment
 

E. 

Risk equivalent
     
  • Question 2
   
 

Which of the following terms describes a phenomenon whereby individuals ignore their own information about the best course of action and instead simply do what everyone else is doing?

      
   

Answers:

A. 

Herding
 

B. 

Relative performance
 

C. 

Absolute performance
 

D. 

Pay-for-performance
 

E. 

Risk sharing
     
  • Question 3
   
 

What term best describes an agent who is indifferent between a sure thing and a gamble of equal expected value?

      
   

Answers:

A. 

Risk premium
 

B. 

Risk averse
 

C. 

Risk neutral
 

D. 

Risk seeking
 

E. 

Risk sharing
     
  • Question 4
 

How are the coordination problems that exist around the construction of a new home generally solved?

      
   

Answers:

A. 

Contractor
 

B. 

Software
 

C. 

Bureaucracy
 

D. 

Pricing
 

E. 

Markets
     
  • Question 5
   
 

Which of the following is not a principal/agent relationship?

      
   

Answers:

A. 

Shareholder/IRS auditors of a company
 

B. 

Shareholders/Company employees
 

C. 

Carmaker/Auto part supplier
 

D. 

Company/Hired counsel
 

E. 

Shareholders/Company CEO
     
  • Question 6
   
 

Which of the following terms describes a contract by which the value of the compensation depends on the measured performance of the employee?

      
   

Answers:

A. 

Risk sharing contract
 

B. 

Implicit incentive contract
 

C. 

Pay-for-performance contract
 

D. 

Compensation contract
 

E. 

Explicit incentive contract
     
  • Question 7
   
 

Which of the following terms describes a contract based on information that cannot be observed by courts or arbitrators?

      
   

Answers:

A. 

Implicit incentive contract
 

B. 

Risk sharing contract
 

C. 

Explicit incentive contract
 

D. 

Compensation contract
 

E. 

Pay-for-performance
     
  • Question 8
   
 

What type of performance measurement based process was used to determine Jack Welch’s successor, Jeffrey Immelt, as CEO of GE?

      
   

Answers:

A. 

Ratings compression
 

B. 

Management-by-objective system
 

C. 

Promotion tournament
 

D. 

360-degree peer review system
 

E. 

Merit ratings system
     
  • Question 9
 

Which of the following terms best describes a contract that guarantees an agent some payment, but provides enough incentive so that the agent does not shirk?

      
   

Answers:

A. 

Certainty equivalent contract
 

B. 

Risk-sharing contract
 

C. 

Risk-averse contract
 

D. 

Risk premium contract
 

E. 

Variability reduction contract
     
  • Question 10
   
 

Which of the following management actions reflects agency problems due to the fact that information held by the agent is hard to observe?

      
   

Answers:

A. 

Enriching managers themselves even if shareholders do not benefit
 

B. 

Giving work a mediocre effort so managers do not have to work excessive hours
 

C. 

Pumping up the firm’s short-run performance even if shareholders are harmed in the long-run
 

D. 

Avoiding risky strategic initiatives even if shareholders view them as “reasonable”
 

E. 

Paying for services that seem excessive to the shareholders
     

 

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