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Economic
Q:
What takes place in the indirect finance market?
A) Part ownership of corporations is sold in the form of stocks.
B) Corporate and government bonds are sold to savers.
C) Deposits of savers are accepted and loans made to borrowers.
D) Government purchases of buildings and equipment are sold to the highest bidder.
Q:
The central role of ________ in a market economy is bringing together savers and borrowers.
A) corporations
B) sole proprietors
C) financial intermediaries
D) stock exchanges
Q:
How can a proprietorship or partnership raise funds for expansion?
A) borrow from someone or an institution willing to lend the funds
B) reinvest profit back into the business
C) take on a partner or more partners
D) Any of these would generate funds for expansion.
Q:
Scott is a manager at a pool cleaning business. He has hired 10 workers to clean pools for him and is considering what type of payment scheme he should set up for his workers. He can pay each of his workers $10 per hour to clean pools, or he can pay his workers $20 for each pool a worker cleans. (It takes 2 hours, on average, for an employee to clean a pool thoroughly.) If Scott wants to maximize the number of pools his workers clean in one day, which payment scheme should he use? Explain.
Q:
How can a corporation's board of directors and its managers try to reduce the principal-agent problem?
Q:
How does the principal-agent problem extend to managers and employees?
Q:
What is corporate governance?
Q:
Who decides who controls a corporation?
Q:
Explain the relationships between a corporation's shareholders, its board of directors, and its top managers.
Q:
Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.
Q:
In a corporation, what are "inside directors" and "outside directors"?
Q:
Members of management serving on the board of directors of a corporation are referred to as outside directors.
Q:
Corporate managers and shareholders always have the same goals.
Q:
The principal-agent problem that exists between shareholders and managers also exists between managers and workers.
Q:
Corporations are legally owned by their shareholders.
Q:
Some corporate governance experts believe that serving on a company's board of directors for an extended length of time diminishes that member's independence from the company's CEO. If this is true, it would tend to
A) reduce the principal-agent problem.
B) increase the principal-agent problem.
C) be in the best interest of shareholders.
D) have no impact on the company's performance, since the CEO is only one member of top management.
Q:
Included on the board of directors of Microsoft are Dina Dublon, former chief financial officer of JP Morgan Chase , the president of Harvey Mudd college Maria M. Klawe, and the vice chairman of Bank of America Charles H. Noski. These three board members do not have a direct management role with Microsoft and are therefore referred to as
A) inside directors.
B) outside directors.
C) competitive directors.
D) honorary directors.
Q:
Steve Ballmer is the Chief Executive Officer of Microsoft as well as a member of Microsoft's board of directors. Ballmer is therefore classified as an
A) inside director.
B) outside director.
C) independent director.
D) unbiased director.
Q:
The existence of ________ increases the risk of buying stock in a corporation.
A) the principal-agent problem
B) corporate governance
C) unlimited personal liability
D) employee-owned corporations
Q:
What can be done to deal with the principal-agent problem?
A) threaten to liquidate the firm
B) link top manager salaries to the profits of the firm or the price of the firm's stock
C) have the CEO be a rotating position
D) forbid managers from owning any company stock
Q:
In many corporations, there is "separation of ownership from control." What does this mean?
A) The shareholders control the corporation, although the board of directors owns the corporation.
B) The managers of the corporation run the corporation, although the shareholders own the corporation.
C) The board of directors controls corporate operations, although the managers of the corporation own the corporation.
D) Top corporate managers only make decisions that have been approved unanimously by shareholders.
Q:
Economists refer to the conflict between the interests of shareholders and the interests of top management as
A) a stock-equity problem.
B) a liability problem.
C) a principal-agent problem.
D) a financial intermediary problem.
Q:
Who selects the board of directors of a corporation?
A) the state where the corporation is chartered
B) employees
C) stockholders
D) managers
Q:
Stockholders
A) are liable for the debts of a corporation.
B) are the owners of a corporation.
C) control a corporation's day-to-day activities.
D) hire the managers of a corporation.
Q:
Who hires the managers of a corporation?
A) the board of directors
B) stockholders
C) managers
D) employees
Q:
A corporation's management
A) owns the corporation.
B) hires the board of directors.
C) are liable for the corporation's debts.
D) operates and controls a corporation in its day-to-day activities.
Q:
The way in which a corporation is structured and the impact a corporation's structure has on the firm's behavior is referred to as
A) corporate taxation.
B) structure composition theory.
C) structural behavior.
D) corporate governance.
Q:
A member of a corporate board of directors that is also a manager of the business is known as
A) a shareholder.
B) an inside director.
C) a partner.
D) a corporate governor.
Q:
The existence of the principal-agent problem
A) increases the risk of buying stock in a corporation.
B) increases the risk of becoming the sole proprietor of a business.
C) implies that managers that have the same incentives as the board of directors.
D) does all of the above.
Q:
By tying the salaries of top corporate managers to the price of the corporation's stock, corporations hope to avoid
A) corporate governance.
B) conflict between the CFO and the CEO.
C) the principal-agent problem.
D) paying high salaries to their managers.
Q:
The person hired by a corporation's board of directors to run the day-to-day operations of the corporation is known as the
A) chairman of the board.
B) chief executive officer.
C) owner-manager.
D) corporate governor.
Q:
What do economists call the situation where a hired manager does not have the same interests as the owners of the business?
A) conquest and control
B) a financial problem
C) a principal-agent problem
D) a financial intermediary problem
Q:
Stockholders
A) select the board of directors of a corporation.
B) select the employees of a corporation.
C) select the managers of a corporation.
D) all of the above.
Q:
A corporation's board of directors
A) hire the managers of the corporation.
B) control the day-to-day activities of the corporation.
C) are personally liable for the debts of the corporation.
D) are the sole owners of the corporation.
Q:
Who operates and controls a corporation in its day-to-day activities?
A) the board of directors
B) stockholders
C) employees
D) management
Q:
Corporate governance involves the way in which
A) the government nationalizes corporations.
B) the government licenses corporations.
C) a corporation is subject to government regulations.
D) a corporation is structured.
Q:
What is an inside director?
A) a movie director who also appears in the movie
B) a member of a corporate board of directors that is also a manager of the business
C) the CEO that is selected by the corporation's board of directors
D) a board of director chair who has been in the job for at least three years
Q:
In which types of business do owners have unlimited personal liability and in which do owners have limited personal liability?
Q:
What are the advantages of setting up a proprietorship or partnership as opposed to a corporation?
Q:
Define a corporation.
Q:
Define a sole proprietorship.
Q:
What type of business has the potential for double taxation of profits and why?
Q:
What are the advantages of setting up a corporation as opposed to a proprietorship or partnership?
Q:
How do unlimited and limited liability differ?
Q:
Define a partnership.
Q:
Suppose consumers pay less than the true cost of medical services because a third party, such as an insurance company, pays most of the bill. Draw a graph showing the supply and demand for medical services with and without a third-party payer. Identify the market equilibrium without insurance, the market equilibrium with insurance, and the area representing the deadweight loss. Be sure to label the efficient and the market prices and quantities.
Q:
Which of the following factors help to explain the sustained increases in health care spending in the United States, and which do not?
a. the additional paperwork, duplication, and waste generated in the U.S. health care system compared to systems in other countries
b. the increasing costs of malpractice insurance and malpractice lawsuit settlements
c. the number of uninsured patients receiving hospital treatment that could have been preformed at a lower cost in doctors' offices
d. the slow growth in labor productivity in health care compared to that in the economy as a whole
e. the aging population
f. increases in the cost of providing health care
Q:
Briefly describe are the 6 main provisions of the Patient Protection and Affordable Care Act (ACA)?
Q:
What has happened to health care's share of gross domestic product in the United States since 1965? How does this compare to what has happened to out-of-pocket spending on health care as a percentage of all spending on health care?
Q:
By 2013, spending on federal health care programs such as Medicare and Medicaid had grown to 6 percent of GDP.
Q:
Since 1960, out-of-pocket spending on health care has increased sharply as a fraction of all health care spending.
Q:
The Congressional Budget Office estimates that the additional taxes and fees enacted under the ACA will be enough to pay for the plan and reduce the federal government's budget deficit.
Q:
If consumers paid the full price of medical services instead of using health insurance and third-party payers to cover part of the cost, the quantity of medical services provided would increase.
Q:
In most circumstances, employees do not pay taxes on the value of health insurance their employers provide them.
Q:
Those who favor changes in the market for health care that would make it more like the markets for other goods and services are generally in favor of universal health care coverage.
Q:
Under the Patient Protection and Affordable Care Act (ACA), insurance companies will be required to participate in a high-risk pool that will cover individuals with pre-existing medical conditions.
Q:
Under the Patient Protection and Affordable Care Act (ACA), residents who do not have health insurance will not be allowed to seek employment.
Q:
"Cost disease" refers to the tendency for low productivity in the service sector to lead to higher costs in those industries.
Q:
The rising cost of malpractice insurance is one of the leading causes of the increase in health care spending as a percentage of GDP in the United States.
Q:
In 2012, employees covered by company-provided health insurance paid ________ percent of the cost of their own health insurance.
A) 3
B) 18
C) 37
D) 65
Q:
Basic supply and demand analysis indicates that having firms rather than the government provide health insurance to workers
A) changes both the composition of the compensation that firms pay and its level.
B) changes the composition of the compensation that firms pay, but does not change its level.
C) does not change the composition of the compensation that firms pay, but does change its level.
D) changes neither the composition of the compensation that firms pay nor its level.
Q:
Article Summary
Administrative overhead costs resulting from insurance companies handling reimbursement claims is in large part the reason that health care in the United States is much more expensive than in other countries. An analysis on the administration costs of health care in the United States found that roughly 30 percent of the costs of health care are administrative and that more than 25 percent of health-sector employees work in administration. Health insurance companies are often paid a fixed percentage of the claims they administer, which gives them little to no impetus to increase efficiency and keep costs down.
Source: Jeffrey Pfeffer, "The Reason Health Care Is So Expensive: Insurance Companies," Bloomberg Businessweek, April 10, 2013.
Refer to the Article Summary. Even if insurance companies were more efficient and brought administrative costs down, consumers would still pay less than the full cost of medical treatment. This would result in the market equilibrium price of medical services being ________ than the efficient equilibrium price, and the market equilibrium quantity of medical services being ________ than the efficient equilibrium quantity.
A) greater; greater
B) greater; less
C) less; greater
D) less; less
Q:
Which of the following reforms could potentially reduce spending on health care without reducing the effectiveness of health care received?
A) nationalize health care so that all health services are government funded and operated
B) give every citizen a fixed amount of money that can only be spent on health care services
C) reimburse consumers for preventive health care expenditures so as to avoid costly emergency medical treatments in the future
D) standardize the tax treatment of employer-based health insurance benefits and private spending on health care
Q:
Economists John Cogan, Glenn Hubbard, and Daniel Kessler have estimated that repealing the tax preference for employer-provided health insurance would
A) significantly reduce the effectiveness of the health care received by those enrolled in these programs.
B) increase overall spending on health care as consumers would have to pay a higher price for medical services.
C) drive up prices for health care coverage since insurance reimbursements to doctors would be reduced.
D) reduce spending by people enrolled in these programs by 33 percent.
Q:
Some economists have proposed making the tax treatment of employer-provided health insurance the same as the tax treatment of individually purchased health insurance and out-of-pocket health care spending. Such changes would make it more likely that
A) consumers would pay prices closer to the actual costs for routine medical care.
B) employers would provide more generous medical coverage to their employees.
C) insurance deductibles would decrease.
D) the quantity of medical services demanded would increase.
Q:
Most employees ________ pay taxes on the value of health insurance provided by employers, and most people ________ get a tax break when buying individual health insurance policies.
A) do; do
B) do; do not
C) do not; do
D) do not; do not
Q:
A goal of market-based reforms of the health care system is to give patients an incentive to pay more attention to the prices of medical services. This would tend to ________ economic efficiency by ________ the costs of medical services
A) increase; increasing
B) increase; decreasing
C) decrease; increasing
D) decrease; decreasing
Q:
Economists who support market-based reforms for health care believe that increased competition among providers of health care would ________ costs and ________ economic efficiency.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q:
Some economists and policymakers who are in favor of government-provided health care believe that providing health care will generate
A) additional moral hazard.
B) positive externalities.
C) greater asymmetric information.
D) more adverse selection.
Q:
The Patient Protection and Affordable Care Act (ACA) is scheduled to be fully implemented by 2019, at which point
A) current budget cuts are expected to have completely offset the cost of the program.
B) more than 30 million additional individuals are expected to have health care coverage.
C) all hospitals in the United States will be taken over by the federal government.
D) private health insurance companies will no longer exist in the United States.
Q:
The Congressional Budget Office estimates that the Patient Protection and Affordable Care Act (ACA) will
A) increase government spending by just under $1 trillion over 10 years.
B) cost the government significantly more than the additional taxes and fees enacted under the law will bring in.
C) eliminate the budget deficit within 10 years.
D) actually reduce government spending over a 20 year period.
Q:
All of the following are part of the "taxes" provision of the Patient Protection and Affordable Care Act (ACA) except
A) pharmaceutical firms and health insurance firms will pay new taxes.
B) investors earning more than $200,000 will pay a new tax on their investment income.
C) beginning in 2018, all taxes on employer-provided health insurance plans will be reduced or eliminated.
D) workers earning more than $200,000 will have their share of the Medicare payroll tax increase.
Q:
All of the following are part of the "regulation of health insurance" provision of the Patient Protection and Affordable Care Act (ACA) except
A) individuals with pre-existing medical conditions will be able to acquire health insurance.
B) all policies must provide coverage for dependant children up to age 26.
C) lifetime dollar maximums on coverage will be prohibited.
D) limits on the size of deductibles and on waiting periods before coverage takes effect will be eliminated.
Q:
For many small firms, providing health insurance for their workers
A) has decreased in cost over the past 10 years.
B) represents their most rapidly increasing cost.
C) costs virtually nothing under the ACA.
D) encourages them to hire more full-time workers.
Q:
Which of the following is a part of the "employer mandate" provision of the Patient Protection and Affordable Care Act (ACA)?
A) Every firm with more than 3 full-time employees must offer health insurance to its employees and must automatically enroll them in the plan.
B) small businesses with fewer than 50 employees will be exempt from being required to participate in the program.
C) Firms with more than 50 full-time employees must offer health insurance or pay a $3,000 fine to the federal government for every employee who receives a tax credit from the federal government for obtaining health insurance through a health exchange.
D) Every resident of the United States must have health insurance that meets certain basic requirements.
Q:
All of the following are part of the "state health exchanges" provision of the Patient Protection and Affordable Care Act (ACA) except
A) each state is required to establish an Affordable Insurance Exchange by 2014.
B) small businesses with fewer than 50 employees will be exempt from being required to participate in the program.
C) low-income individuals will be eligible for tax credits to offset the costs of buying health insurance.
D) health insurance policies that meet certain specified requirements will be offered by state-run agencies, by non-profit firms, or by the federal government.
Q:
All of the following are part of the "individual mandate" provision of the Patient Protection and Affordable Care Act (ACA) except
A) individuals are allowed to opt out of the insurance program if they can prove they have no serious health issues and do so before the act fully takes effect in the year 2014.
B) by 2016, fines for not having health insurance will be the greater of $695 per person or 2.5 percent of income.
C) beginning in 2014, individuals who do not acquire health insurance will be subject to a fine.
D) with limited exceptions, every resident of the United States will be required to have health insurance that meets certain basic requirements.
Q:
Of the following U.S. presidents, which was the first to propose a national health insurance program to Congress?
A) Barack Obama
B) Bill Clinton
C) John F. Kennedy
D) Harry Truman
Q:
In addition to covering the costs of unpredictable events, health insurance typically covers many planned expenses, such as routine checkups, annual physicals, and the cost of vaccinations. because of this, health insurance
A) discourages overuse of health care services.
B) encourages overuse of health care services.
C) generates an efficient quantity of health care services.
D) is not accepted by most doctors and hospitals.
Q:
When consumers pay only a fraction of the true cost of medical services, their demand increases. The marginal cost of producing these extra services
A) is greater than the marginal benefit consumers receive from them.
B) is less than the marginal benefit consumers receive from them.
C) is equal to the marginal benefit consumers receive from them.
D) is zero due to the insurance payments.