Question

1.In order for a kickback to take place:

A.Someone must have the authority & responsibility to decide how to spend money of others.

B.Rich people must have more political power than poor.

C.Those in private business must be corrupt (but government officials may be honest).

E.Government officials must be corrupt (but those in private business may be honest).

2.Most economics textbooks do not mention kickbacks since they assume:

A.Consumers spend their own money purchasing items they consume.

B.Consumers are rational and respond to incentives.

C.Property rights are well defined.

D.Government officials are altruistic and do their best to help vote

3.Which of the following is NOT benefit of an incentive compatible contract?

a.Fewer transactions between Principals and Agents will take place.

b.Car drivers may get a lower insurance premium because of a larger deductible.

c.Some borrowers may be able to get loan only because the contract reassures the lender of repayment.

d.The Principal can spend less monitoring and share some of this savings with the Agent.

4.What is the primary benefit of having CPA firms audit the financial documents of publicly traded firms?

A.It gives investors confidence that the firm is truthful and potentially profitable, and so it is easier for firms to sell stock and get loans as a result.

B.It eliminates the chance a firm will go bankrupt.

C.It gives information on how to cut costs to the firm audited.

D.It saves taxpayers money as then government accountants don’t need audit the documents.

Answer 1

1) Answer: (A) Someone must have the authority & responsibility to decide how to spend money of others.

Explanation:

A kickback is an illegal payment intended as compensation for favorable treatment or other improper services. The kickback may be in the form of money, a gift, credit, or anything of value. Paying or receiving kickbacks is a corrupt practice that interferes with an employee's or a public official's ability to make unbiased decisions. From the above, it is clear that for a kickback to take place someone must have the authority and responsibility, then only the illegal payment can take place.
Thus, option A is correct.