Chapter 17 - Macroeconomic and Industry Analysis
Chapter 17
Macroeconomic and Industry Analysis
Multiple Choice Questions
1.A top down analysis of a firm starts with ______.
A.the relative value of the firm
B.the absolute value of the firm
C.the domestic economy
D.the global economy
E.the industry outlook
2.An example of a highly cyclical industry is ______.
A.the automobile industry
B.the tobacco industry
C.the food industry
D.the automobile industry and the tobacco industry
E.the tobacco industry and the food industry
3.Demand-side economics is concerned with ______.
A.government spending and tax levels
B.monetary policy
C.fiscal policy
D.government spending and tax levels and monetary policy
E.government spending and tax levels, monetary policy, and fiscal policy
4.The most widely used monetary tool is ______.
A.altering the discount rate
B.altering the reserve requirements
C.open market operations
D.altering marginal tax rates
E.None of these is correct.
5.The "real", or inflation-adjusted, exchange rate, is
A.the balance of trade.
B.the budget deficit.
C.the purchasing power ratio.
D.unimportant to the U.S. economy.
E.None of these is correct.
6.The "normal" range of price-earnings ratios for the S&P500 Index is
A.between 2 and 10.
B.between 5 and 15.
C.less than 8.
D.between 12 and 25.
E.greater than 20.
7.Monetary policy in the U.S. is determined by
A.government budget decisions.
B.presidential mandates.
C.the board of Governors of the Federal Reserve System.
D.congressional actions.
E.None of these is correct.
8.A trough is ______.
A.a transition from an expansion in the business cycle to the start of a contraction
B.a transition from a contraction in the business cycle to the start of an expansion
C.a depression that lasts more than three years
D.only something used by farmers to feed pigs and not an investment term
E.None of these is correct.
9.A peak is ______.
A.a transition from an expansion in the business cycle to the start of a contraction
B.a transition from a contraction in the business cycle to the start of an expansion
C.a depression that lasts more than three years
D.only a feature of geography and not an investment term
E.None of these is correct.
10.If the economy is growing, firms with high operating leverage will experience ______.
A.higher increases in profits than firms with low operating leverage
B.similar increases in profits as firms with low operating leverage
C.smaller increases in profits than firms with low operating leverage
D.no change in profits
E.None of these is correct.
11.If the economy is shrinking, firms with high operating leverage will experience ______.
A.higher decreases in profits than firms with low operating leverage
B.similar decreases in profits as firms with low operating leverage
C.smaller decreases in profits than firms with low operating leverage
D.no change in profits
E.None of these is correct.
12.If the economy is growing, firms with low operating leverage will experience ______.
A.higher increases in profits than firms with high operating leverage
B.similar increases in profits as firms with high operating leverage
C.smaller increases in profits than firms with high operating leverage
D.no change in profits
E.None of these is correct.
13.If the economy is shrinking, firms with low operating leverage will experience ______.
A.higher decreases in profits than firms with high operating leverage
B.similar decreases in profits as firms with high operating leverage
C.smaller decreases in profits than firms with high operating leverage
D.no change in profits
E.None of these is correct.
14.Industrial production refers to ______.
A.the amount of personal disposable income in the economy
B.the difference between government spending and government revenues
C.the total manufacturing output in the economy
D.the total production of goods and services in the economy
E.None of these is correct.
15.GDP refers to ______.
A.the amount of personal disposable income in the economy
B.the difference between government spending and government revenues
C.the total manufacturing output in the economy
D.the total production of goods and services in the economy
E.None of these is correct.
16.A rapidly growing GDP indicates a(n) ______economy with ______opportunity for a firm to increase sales.
A.stagnant; little
B.stagnant; ample
C.expanding; little
D.expanding; ample
E.stable; no
17.A declining GDP indicates a(n) ______economy with ______opportunity for a firm to increase sales.
A.stagnant; little
B.stagnant; ample
C.expanding; little
D.expanding; ample
E.stable; no
18.The average duration of unemployment and changes in the consumer price index for services are ______.
A.leading economic indicators
B.coincidental economic indicators
C.lagging economic indicators
D.composite economic indicators
E.None of these is correct.
19.A firm in an industry that is very sensitive to the business cycle will likely have a stock beta ______.
A.greater than 1.0
B.equal to 1.0
C.less than 1.0 but greater than 0.0
D.equal to or less than 0.0
E.There is no relationship between beta and sensitivity to the business cycle.
20.If the economy were going into a recession, an attractive industry to invest in would be the ______industry.
A.automobile
B.medical services
C.construction
D.automobile and construction
E.medical services and construction
21.The stock price index and new orders for nondefense capital goods are
A.leading economic indicators.
B.coincidental economic indicators.
C.lagging economic indicators.
D.not useful as economic indicators.
E.None of these is correct.
22.A firm in the early stages of the industry life cycle will likely have ______.
A.high market penetration
B.high risk
C.rapid growth
D.high market penetration and rapid growth
E.high risk and rapid growth
23.Assume the U. S. government was to decide to increase the budget deficit. This action will most likely cause ______to increase.
A.interest rates
B.government borrowing
C.unemployment
D.interest rates and government borrowing
E.None of these is correct.
24.Assume the U. S. government was to decide to decrease the budget deficit. This action will most likely cause ______to decrease.
A.interest rates
B.government borrowing
C.unemployment
D.interest rates and government borrowing
E.None of these is correct.
25.Assume that the Federal Reserve decreases the money supply. This action will cause ______to decrease.
A.interest rates
B.the unemployment rate
C.investment in the economy
D.trade balance
E.None of these is correct.
26.If the currency of your country is depreciating, the result should be to ______exports and to ______imports.
A.stimulate; stimulate
B.stimulate; discourage
C.discourage; stimulate
D.discourage; discourage
E.not affect; not affect
27.If the currency of your country is appreciating, the result should be to ______exports and to ______imports.
A.stimulate; stimulate
B.stimulate; discourage
C.discourage; stimulate
D.discourage; discourage
E.not affect; not affect
28.Increases in the money supply will cause demand for investment and consumption goods to ______in the short run and cause prices to ______in the long run.
A.increase; increase
B.increase; decrease
C.decrease; increase
D.decrease; hold steady
E.be unaffected; be unaffected
29.The North American Industry Classification System (NAICS) codes
A.are for firms that operate in the NAFTA region.
B.group firms by industry.
C.are a perfect classification system for firms.
D.are for firms that operate in the NAFTA region and group firms by industry.
E.are for firms that operate in the NAFTA region and are a perfect classification system for firms.
30.If interest rates increase, business investment expenditures are likely to ______and consumer durable expenditures are likely to ______.
A.increase; increase
B.increase; decrease
C.decrease; increase
D.decrease; decrease
E.be unaffected; be unaffected
31.Fiscal policy generally has a ______direct impact than monetary policy on the economy, and the formulation and implementation of fiscal policy is ______than that of monetary policy.
A.more; quicker
B.more; slower
C.less; quicker
D.less; slower
E.Cannot tell from the information given.
32.Fiscal policy is difficult to implement quickly because
A.it requires political negotiations.
B.much of government spending is nondiscretionary and cannot be changed.
C.increases in tax rates affect consumer spending gradually.
D.it requires political negotiations and much of government spending is nondiscretionary and cannot be changed.
E.it requires political negotiations and increases in tax rates affect consumer spending gradually.
33.Inflation
A.is the rate at which the general level of prices is increasing.
B.rates are high when the economy is considered to be "overheated."
C.is unrelated to unemployment rates.
D.is the rate at which the general level of prices is increasing; and rates are high when the economy is considered to be "overheated."
E.is the rate at which the general level of prices is increasing; and is unrelated to unemployment rates.
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets.
34.If the economy enters a recession, the after-tax profit of Firm A will be ______.
A.$0
B.$6,000
C.$30,000
D.$60,000
E.None of these is correct.
35.If the economy enters a recession, the after-tax profit of Firm B will be ______.
A.$0
B.$6,000
C.$36,000
D.$60,000
E.None of these is correct.
36.If the economy is strong, the after-tax profit of Firm A will be ______.
A.$0
B.$6,000
C.$36,000
D.$60,000
E.None of these is correct.
37.If the economy is strong, the after-tax profit of Firm B will be ______.
A.$0
B.$6,000
C.$36,000
D.$60,000
E.None of these is correct.
38.Calculate firm A's degree of operating leverage.
A.11.0
B.2.86
C.9.09
D.1.00
E.None of these is correct.
39.Calculate firm B's degree of operating leverage.
A..714
B.9.09
C.7.86
D.7.14
E.None of these is correct.
40.Classifying firms into groups, such as ______provides an alternative to the industry life cycle.
A.slow-growers
B.stalwarts
C.countercyclicals
D.slow-growers and stalwarts
E.slow-growers and countercyclicals
41.Supply-side economists wishing to stimulate the economy are most likely to recommend
A.a decrease in the money supply.
B.a decrease in production output.
C.an increase in the real interest rate.
D.a decrease in the tax rate.
E.None of these is correct.
42.Which of the following are not examples of defensive industries?
A.Food producers.
B.Durable goods producers.
C.Pharmaceutical firms.
D.Public utilities.
E.Durable goods producers and pharmaceutical firms.
43.Which of the following are examples of defensive industries?
A.Food producers.
B.Durable goods producers.
C.Pharmaceutical firms.
D.Public utilities.
E.Food producers, pharmaceutical firms and Public utilities
44.______is a proposition that a strong proponent of supply side economics would most likely stress.
A.Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest rates as they depend on government revenues
B.Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax shelter benefits
C.Income redistribution payments will exert little impact on real aggregate supply as they do not consume resources directly
D.A tax reduction will increase the disposable income of households, and thus, the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus
E.None of these is a likely statement for a supply-side proponent
45.The industry life cycle is described by which of the following stage(s)?
A.Start-up.
B.Consolidation.
C.Absolute decline.
D.Start-up and consolidation.
E.Start-up, consolidation and absolute decline.
46.In the start-up stage of the industry life cycle,
A.it is difficult to predict which firms will succeed and which firms will fail.
B.industry growth is very rapid.
C.firms pay a high level of dividends.
D.it is difficult to predict which firms will succeed and which firms will fail and industry growth is very rapid.
E.industry growth is very rapid and firms pay a high level of dividends.
47.In the consolidation stage of the industry life-cycle,
A.it is difficult to predict which firms will succeed and which firms will fail.
B.industry growth is very rapid.
C.the performance of firms will more closely track the performance of the overall industry.
D.it is difficult to predict which firms will succeed and which firms will fail and industry growth is very rapid.
E.industry growth is very rapid and the performance of firms will more closely track the performance of the overall industry.
48.In the maturity stage of the industry life cycle,
A.the product has reached full potential.
B.profit margins are narrower.
C.producers are forced to compete on price to a greater extent.
D.the product has reached full potential and profit margins are narrower.
E.the product has reached full potential, profit margins are narrower, and producers are forced to compete on price to a greater extent.
49.In the decline stage of the industry life cycle,
A.the product may have reached obsolescence.
B.the industry will grow at a rate less than the overall economy.
C.the industry may experience negative growth.
D.the product may have reached obsolescence and the industry will grow at a rate less than the overall economy.
E.the product may have reached obsolescence, the industry will grow at a rate less than the overall economy, and the industry may experience negative growth.
50.A variety of factors relating to industry structure affect the performance of the firm, including
A.threat of entry.
B.rivalry between existing competitors.
C.the state of the economy.
D.threat of entry and the state of the economy.
E.threat of entry and rivalry between existing competitors.
51.The process of estimating the dividends and earnings that can be expected from the firm based on determinants of value is called
A.business cycle forecasting.
B.macroeconomic forecasting.
C.technical analysis.
D.fundamental analysis.
E.None of these is correct.
52.The emerging stock market exhibiting the highest U.S. dollar return in 2009 was
A.Brazil.
B.Argentina.
C.Poland.
D.Mexico.
E.China.
53.The life cycle stage in which industry leaders are likely to emerge is the
A.start-up stage.
B.maturity stage.
C.consolidation stage.
D.relative decline stage.
E.All of these are correct.
54.Investment manager Peter Lynch refers to firms that are in bankruptcy or soon might be as
A.slow growers.
B.stalwarts.
C.cyclicals.
D.asset plays.
E.turnarounds.
55.A top-down analysis of a firm's prospects starts with
A.an examination of the firm's industry.
B.an evaluation of the firm's position within its industry.
C.a forecast of interest rate movements.
D.an assessment of the broad economic environment.
E.the application of the CAPM to find the firm's theoretical return.