II. For each question 1-4, mark one for the answer you choose.

1. The period of economic expansion is characterized by

A. a high level of unemployment.

B. increased government expenditure.

C. shortages and bottlenecks.

2. Governments are able to engineer booms and recessions by

A. raising taxes.

B. decreasing government expenditure.

C. cutting interest rates.

3. The balance of payments will not probably become a serious problem if

A. the current account deficit gets severe.

B. the exchange rate starts to plummet.

C. it is improved by the government.

4. In the middle of phase 2 inflation will be deteriorating because

A. there are no bottlenecks.

B. the peak of the business cycle is approached.

C. shortages do not occur.

III. There is one mistake in each of the following sentences (either an underlined word or a phrase); you are to find it.

1. As far as unemployment concerned, it is rapidly falling.

a

b

c

2. In the middle of the phase 2, inflation and the balance of payments a b

will be deteriorating.

c

3. By careful economic management the government can get the a

economy to look as healthy as possibly.

b c

4. In the USA the government cannot choose when to call an elections.

a

b

c

5. Once a government has won an election it can then deflate an a

economy, thus a recession will likely to follow.

b c

6. A political business cycle include recessions following elections a b

and rapid growth preceding elections.

c

Managers and owners:

High Salaries and Corporate Goals

I. Read the text. Some parts of the text have been taken out. These extracts are listed below. Complete each gap with the appropriate extract. One sentence does not belong in any of the gaps.

a) If the share value goes above this level, the manager makes the difference.

b) Increasingly there has been greater reliance on payouts of shares and share “options”, rather than on salaries and short-term bonuses.

c) But in doing this, they will fail to embark on projects which could potentially be very profitable (albeit risky) and thereby fail to add value to investors’ shares.

d) Share option schemes are becoming less popular.

e) High rewards are likely to motivate not only top executives, but also those below them.

In 1995, Jack Welch, chief executive of General Electric, the American conglomerate, received earnings of $22 million, making him the highest-paid chief executive in the USA.

The high pay awards given to many top managers in both the USA and the UK has, in recent years, met with a storm of protest. Many have argued that such pay awards have been excessive, especially when many of the companies they work for have been cutting their workforce in a process of “rationalization” and workers’ pay has been capped or has risen only slowly.

How can such high pay awards to top executives be justified? The two main arguments put forward to justify such generosity are as follows:

• “The best cost money”. Failure to offer high rewards may encourage the top executives within an industry to move elsewhere.

• “High rewards motivate”. ___ (1) Managers, especially those in the middle of the business hierarchy, will compete for promotion and seek to do well with such high rewards on offer.

In addition to using high salaries to motivate managers, shareholders, who ultimately determine the pay of top executives, have been keen to modify the manner in which top executives receive their rewards, in order to provide additional incentives. ___ (2) The justification for such a move is that giving rewards in the form of shares links an environment, a rational “reward-maximising” manager will always be seeking to enhance share value, and this will be linked to the company’s success. As such, the need for monitoring managerial activity diminishes.

The drawback of simply giving shares (as opposed to share options) to top managers concerns how they might respond to risk. They might be “risk averse” and seek to protect the value of their shares, preferring to avoid risky ventures that might jeopardize profits and cause share prices to fall. ___ (3) Because of this, the giving of share options to top managers has become more prevalent.

Share options give top managers the right to buy shares at a set price. ___ (4) If the share price falls below this level, the manager can exercise the option not to buy. In such circumstances, top managers are shielded from the risks of failure, but encouraged to do as well as possible.

It was estimated that, in the UK in 1994, the directors and senior executives of PowerGen and National Power had share options valued at £23 million. The chief executive of PowerGen alone made a profit of £1.2 million by exercising his option to buy the shares.