Deck 12: Macroeconomic and Industry Analysis

Question 1

A big increase in government spending is an example of _________.

A) a positive demand shock
B) a positive supply shock
C) a negative demand shock
D) a negative supply shock

Answer 1

A

Question 2

Attempting to forecast future earnings and dividends is consistent with which of the following approaches to securities analysis?

A) Technical analysis
B) Fundamental analysis
C) Both technical analysis and fundamental analysis
D) Indexing

Answer 2

B

Question 3

The most widely used monetary policy tool is _________.

A) altering the discount rate
B) altering reserve requirements
C) open market operations
D) increasing the budget deficit

Answer 3

C

Question 4

Which of the following industries would most analysts classify as mature?

A) Internet service providers
B) Biotechnology
C) Wireless communication
D) Auto manufacturing

Question 5

In 1980 the dollar to yen exchange rate was about $0.0045.In 2007 the yen to dollar exchange rate was about 121 yen per dollar.A Japanese producer would have had to increase the dollar price of a good sold in the U.S.by _____ to maintain the same yen price in 2007.

A) 83.7%
B) 79.5%
C) 65.4%
D) 59.3%

Question 6

Which one of the following is the ratio of actual output from factories to potential output from factories?

A) Capacity utilization
B) Participation rate
C) Durable goods orders
D) Industrial production

Question 7

The market value of all goods and services produced during a given time period is called ______.

A) GDP
B) industrial production
C) capacity utilization
D) factory orders

Question 8

Portfolio manager Peter Lynch would classify Coca-Cola as _________.

A) an asset play
B) a slow grower
C) a stalwart
D) a turnaround

Question 9

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

Question 10

Which one of the following stocks represents industries with below-average sensitivity to the state of the economy?

A) Financials
B) Technology
C) Food and beverage
D) Cyclicals

Question 11

You can earn abnormal returns on your investments via macro forecasting ______.

A) if you can forecast the economy at all
B) if you can forecast the economy as well as the average forecaster
C) if you can forecast the economy better than the average forecaster
D) only if you can forecast the economy with perfect accuracy

Question 12

Since 1999,the purchasing power of the U.S.dollar has increased relative to the purchasing power of _______.

A) UK
B) Euro
C) Switzerland
D) Canada

Question 13

The Conference Board's Consumer Confidence Index is released ______.

A) daily
B) weekly
C) monthly
D) quarterly

Question 14

According to __________ economists,the growth of the U.S.economy in the 1980s can be attributed to lower marginal tax rates which improved the incentives for people to work.

A) Keynesian
B) monetarist
C) supply-side
D) demand-side

Question 15

The analysis of the determinants of firm value is called _____________.

A) fundamental analysis
B) technical analysis
C) momentum analysis
D) indexing

Question 16

A top-down analysis of a firm's prospects starts with an analysis of the ____.

A) firm's position in its industry
B) U.S. economy or even the global economy
C) industry
D) specific firm under consideration

Question 17

If you believe the economy is about to go into a recession you might change your asset allocation by selling _______ and buying ______.

A) growth stocks; long-term bonds
B) long-term bonds; growth stocks
C) defensive stocks; growth stocks
D) defensive stocks; long-term bonds

Question 18

An increase in the value of the yen against the U.S.dollar can cause the Japanese automaker,Toyota,to either _____________ on its U.S.sales.

A) lose market share or reduce its profit margin
B) gain market share or reduce its profit margin
C) lose market share or increase its profit margin
D) gain market share or increase its profit margin

Question 19

The yield curve spread between 10-year T-bond and federal funds rate is a _______ economic indicator.

A) leading
B) lagging
C) coincident
D) mixed

Question 20

You estimate that the present value of a firm's cash flow is valued at $15 million.The break up value of the firm if you were to sell the major assets and divisions separately would give $20 million.This is an example of what Peter Lynch would call a/an ___________.

A) stalwart
B) slow growth
C) star
D) asset play

Question 21

Which of the following affects a firm's sensitivity of its earnings to the business cycle?
I)Financial leverage
II)Operating leverage
III)Type of product

A) II only
B) I and II only
C) I and III only
D) I, II and III

Question 22

Inflation is caused by ________________.

A) unions
B) rapid growth of money supply
C) excess supply
D) low rates of capacity utilization

Question 23

The ratio of the purchasing power of two economies is termed the _______.

A) balance of trade
B) real exchange rate
C) real interest rate
D) nominal exchange rate

Question 24

Which of the following describes the rate at which your ability to purchase grows while you hold an interest-earning investment?

A) The nominal exchange rate
B) The nominal interest rate
C) The real exchange rate
D) The real interest rate

Question 25

Which of the following companies will be the best example of a turnaround? Portfolio manager Peter Lynch would classify Coca-Cola as _________.

A) Coca Cola
B) Microsoft
C) Exxon-Mobil
D) Kmart

Question 26

Which one of the following is probably the most direct and immediate way to stimulate or slow the economy although it is not very useful for fine tuning economic performance?

A) Fiscal policy
B) Monetary policy
C) Supply-side policy
D) Rising minimum wages

Question 27

______________ in interest rates are associated with stock market declines.

A) Anticipated increases
B) Unanticipated increases
C) Anticipated decreases
D) Unanticipated decreases

Question 28

Everything else equal,if you expect a larger interest rate increase than other market participants,you should _________.

A) buy long-term bonds
B) buy short-term bonds
C) buy common stocks
D) buy preferred stocks

Question 29

An example of a highly cyclical industry is _________.

A) the automobile industry
B) the tobacco industry
C) the pharmaceutical industry
D) the utility industry

Question 30

Which of the following would not be considered a supply shock?

A) A change in the price of imported oil
B) Frost damage to the orange crop
C) A change in the level of education of the average worker
D) An increase in the level of government spending

Question 31

To obtain an approximate estimate of the real interest rate,one must _________ the __________ the nominal risk-free rate.

A) add; default premium to the
B) subtract; default premium from the
C) add; expected inflation to
D) subtract; expected inflation from

Question 32

The stock price index and contracts and orders for non defense capital goods are _________.

A) leading economic indicators
B) coincidental economic indicators
C) lagging economic indicators
D) leading and coincidental indicators respectively

Question 33

Everything else equal,an increase in the government budget deficit would ______.
I)increase the government's demand for funds
II)shift the demand curve for funds to the left
III)increase the interest rate in the economy

A) II only
B) I and II only
C) I and III only
D) I, II and III

Question 34

Which of the following is not an example of fiscal policy?

A) Social Security spending
B) Medicare spending
C) Fed purchases of Treasury securities
D) Changes in the tax rate

Question 35

In macroeconomic terms an increase in the price of imported oil or a decrease in the availability of oil is an example of a _________.

A) demand shock
B) supply shock
C) monetary shock
D) refinery shock

Question 36

If economic conditions are such that very slow growth is expected in the foreseeable future,one would want to invest in industries with __________ sensitivity to economic conditions.

A) below average
B) average
C) above average
D) since growth is expected to be slow, sensitivity to economic conditions is not an issue

Question 37

Which one of the following describes the amount by which government spending exceeds government revenues?

A) Balance of trade
B) Budget deficit
C) Gross domestic product
D) Output gap

Question 38

Which one of the following is not a demand shock?

A) Increase in government spending
B) Increases in the money supply
C) Reductions in consumer spending
D) Improvements in education of U.S. workers

Question 39

The average duration of unemployment is _________.

A) a leading economic indicator
B) a coincidental economic indicator
C) a lagging economic indicator
D) both coincidental and lagging

Question 40

Supply side economics tends to focus on _______________.

A) government spending
B) price controls
C) monetary policy
D) increasing productive capacity

Question 41

If the economy is going into a recession,a good industry to invest in would be the __________ industry.

A) automobile
B) banking
C) construction
D) medical services

Question 42

Order the following stages in the industry life cycle from earliest to latest that occur after the start up phase ________.
I)maturity
II)relative decline
III)consolidation

A) III, I, II
B) I, III, II
C) III, II, I
D) I, II, III

Question 43

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

Question 44

A firm in the early stages of its industry life cycle will likely have _________.

A) low dividend payout rates
B) low rates of investment
C) low rates of return on investment
D) low R&D spending

Question 45

Capital goods industries such as industrial equipment,transportation or construction would be good investments during the _____ stage of the business cycle.

A) peak
B) contraction
C) trough
D) expansion

Question 46

Which one of the following is not a U.S.supply shock?

A) Unions force an increase in national wage rates
B) 30% drop in oil supply from the Middle East
C) Extended droughts reduce U.S. food production 25%
D) Increases in Chinese purchases of U.S. exports

Question 47

Which of the following is the rate at which the general level of prices for goods and services is rising?

A) The exchange rate
B) The gross domestic product growth rate
C) The inflation rate
D) The real interest rate

Question 48

The nominal interest rate is 10%.The real interest rate is 4%.The inflation rate must be _________.

A) -6.00%
B) 4.00%
C) 5.77%
D) 14.40%

Question 49

Which of the following describes the ratio of the number of people classified as out of work to the total labor force?

A) The capacity utilization rate
B) The participation rate
C) The unemployment rate
D) The natural rate

Question 50

The discount rate is the ________.

A) interest rate banks charge each other for overnight loans of deposits on reserve at the Fed
B) interest rate the Fed charges commercial banks on short term loans
C) interest rate that the U.S. Treasury pays on its bills
D) interest rate that banks charge their best corporate customers

Question 51

An analyst starts by examining the broad economic environment and then considers the implications of the economy on the industry in which the firm operates.Finally,the firm's position within the industry is examined.This is called __________ analysis.

A) bottom-up
B) outside-inside
C) top-down
D) upside-down

Question 52

Firm A produces gadgets.The price of gadgets is $2 each.Firm A has total fixed costs of $1,000,000 and variable costs of $1.00 per gadget.The corporate tax rate is 40%.If the economy is strong,the firm will sell 2,000,000 gadgets.If the economy enters a recession it will sell only half as many gadgets.If the economy enters a recession,the after-tax profit of Firm A will be _________.

A) $0
B) $90,000
C) $180,000
D) $270,000

Question 53

If you are going to earn abnormal returns based on your macroeconomic analysis it will most likely have to be because __________.

A) you have more information than others
B) you are a better analyst than others
C) you have the same information as others
D) you are an equally good analyst as others

Question 54

If the currency of your country is depreciating,this should __________ exports and __________ imports.

A) stimulate; stimulate
B) stimulate; discourage
C) discourage; stimulate
D) discourage; discourage

Question 55

Pharmaceuticals,food,and other necessities would be good performers during the ____ stage of the business cycle.

A) peak
B) contraction
C) trough
D) expansion

Question 56

Increases in the money supply will cause demand for investment and consumption goods to __________ in the short run and may cause prices to __________ in the long run.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 57

An investment strategy which entails shifting the portfolio into industry sectors that are forecast to outperform others based on macroeconomic forecasts is termed ______________.

A) sector rotation
B) contraction/expansion analysis
C) life cycle analysis
D) business cycle shifting

Question 58

The Board of Governors of the Federal Reserve System are appointed by ____________ to serve _____________ terms.

A) the Senate; 10 year
B) the House of Representatives; 8 year
C) the President; 14 year
D) the Secretary of the Treasury; 6 year

Question 59

Assume that the Federal Reserve increases the money supply.This will cause ____________.
I)interest rates to decrease
II)consumption and investment to decrease
III)inflation to fall

A) I only
B) I and II only
C) II and III only
D) I, II and III

Question 60

The nominal interest rate is 6%.The inflation rate is 3%.The exact real interest rate must be _________.

A) 2.91%
B) 3.85%
C) 1.45%
D) 2.12%

Question 61

The federal government decides to pay for the transition to private social security accounts with a one time $1 trillion bond issue.What will be the biggest concern to businesses relative to the "crowding out" effect?

A) Higher interest rates due to the new government borrowing
B) Inflation resulting from more government purchases
C) A negative supply shock
D) Shortage of investment due to new accounts

Question 62

Firm B produce gadgets.The price of gadgets is $2 each.Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget.The corporate tax rate is 30%.If the economy is strong,the firm will sell 2,000,000 gadgets.If the economy enters a recession it will sell only half as many gadgets.If the economy is strong,the after-tax profit of Firm B will be _________.

A) $90,000
B) $210,000
C) $300,000
D) $630,000

Question 63

What economic variable is most closely associated with increasing corporate profits?

A) Exchange rates
B) Inflation
C) Gross domestic product
D) Budget deficits

Question 64

An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:
1. Industry sales have grown at 15-20% per year in recent years are expected to grow at 10-15% per year over the next three years, still well above the economic growth rate.
2. Some U.S. manufacturers are attempting to enter fast growing non-U.S. markets, which remain largely unexploited.
3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4. The current penetration rate in the U.S. is 60% of households and will be difficult to increase.
5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6. Some manufacturers are able to develop new, unexploited niche markets in the U.S. based on company reputation, quality, and service.
7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8. New manufacturers continue to enter the market.
Characteristics _______ would be typical of an industry that is in the start-up stage.

A) 4 and 7
B) 1 and 4
C) 2 and 5
D) none of the characteristics listed match the start-up stage

Question 65

An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:
1. Industry sales have grown at 15-20% per year in recent years are expected to grow at 10-15% per year over the next three years, still well above the economic growth rate.
2. Some U.S. manufacturers are attempting to enter fast growing non-U.S. markets, which remain largely unexploited.
3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4. The current penetration rate in the U.S. is 60% of households and will be difficult to increase.
5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6. Some manufacturers are able to develop new, unexploited niche markets in the U.S. based on company reputation, quality, and service.
7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8. New manufacturers continue to enter the market.
Characteristics 4 and 5 would indicate that the industry is in the _________ stage.

A) start-up
B) consolidation
C) maturity
D) relative decline

Question 66

Firm B produce gadgets.The price of gadgets is $2 each.Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget.The corporate tax rate is 40%.What is the breakeven number of gadgets B must sell to make a zero after tax profit?

A) 300,000
B) 400,000
C) 500,000
D) 600,000

Question 67

An expanding economy puts stress on the manufacturing ability of a company.When a firm turns business down during periods of economic expansion a problem exist in the area of ____________.

A) asset allocation
B) capacity utilization
C) employment management
D) strategic planning

Question 68

The Fed funds rate is the __________.

A) interest rate that banks charge their best corporate customers
B) interest rate banks charge each other for overnight loans of deposits on reserve at the Fed
C) interest rate the Fed charges commercial banks on short term loans
D) interest rate that the U.S. Treasury pays on its bills

Question 69

An expanding economy requires more workers.If the supply of workers becomes inadequate to meet the demand,what is the likely impact on the economy?

A) An economic slowdown is likely
B) Employment trends will reverse and unemployment will occur
C) Government deficits will result from capacity utilization
D) Inflation may result from upward wage pressures

Question 70

A supply side economist would likely agree with which of the following statements?

A) Real output and aggregate employment are primarily determined by aggregate demand.
B) Real income will rise when government expenditures and tax rates increase.
C) Real output and aggregate employment are primarily determined by tax rates.
D) Increasing the money supply will increase real output without causing higher inflation.

Question 71

The supply of funds in the economy is controlled primarily by ____________.

A) the Federal Reserve System
B) the Congress
C) money center banks
D) the Treasury department

Question 72

An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:
1. Industry sales have grown at 15-20% per year in recent years are expected to grow at 10-15% per year over the next three years, still well above the economic growth rate.
2. Some U.S. manufacturers are attempting to enter fast growing non-U.S. markets, which remain largely unexploited.
3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4. The current penetration rate in the U.S. is 60% of households and will be difficult to increase.
5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6. Some manufacturers are able to develop new, unexploited niche markets in the U.S. based on company reputation, quality, and service.
7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8. New manufacturers continue to enter the market.
Characteristics ____ would be typical of an industry that is in the consolidation stage.

A) 6 and 7
B) 1 and 4
C) 5 and 6
D) 2 and 8

Question 73

Counter-cyclical fiscal policy is best described by which of the following statements?

A) Government surpluses are planned during economic booms, and deficits are planned during economic recessions.
B) The annual budget should always be balanced.
C) Deficits should always equal surpluses.
D) Government deficits are planned during economic booms, and surpluses are planned during economic recessions.

Question 74

The goal of supply side policies is to _______.

A) increase government involvement in the economy
B) create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods
C) maximize tax revenues of the government
D) focus more on wealth redistribution policies

Question 75

Which of the characteristics would be typical of an industry that is in the maturity stage?

A) 1, 2 and 3
B) 4 and 5
C) 6, 7 and 8
D) all characteristics fit the maturity stage

Question 76

You would expect the beta of cyclical industries to be ______ and the beta of defensive industries to be ______.

A) greater than 1; less than 1
B) less than 1; less than 1
C) less than 1; greater than 1
D) greater than 1; greater than 1

Question 77

The expansion of the money supply at a rate that exceeds the increase in goods and services will likely result in ___________.

A) expanding economy
B) increased inflation
C) interest rate declines
D) lower GDP

Question 78

Which of the following are examples of cyclical industries?
I)Maytag
II)Computer chip manufacturers
III)Kellogg's Frosted Flakes
IV)Pfizer

A) I and II only
B) I, II and III only
C) II, III and IV only
D) I, II, III and IV

Question 79

The decline in the value of the dollar relative to the yen will have what impact on the purchase of U.S.goods in Japan?

A) U.S. goods will increase in cost and Japan will import more.
B) U.S. goods will increase in cost and Japan will import less.
C) U.S. goods will decrease in cost and Japan will import more.
D) U.S. goods will increase in cost and Japan will export less.

Question 80

Which of the following actions should the central bank take if monetary authorities want to reduce the supply of money to slow the rate of inflation?

A) Sell government bonds, reducing money supply, increasing interest rates and slowing aggregate demand.
B) Buy government bonds, reducing money supply, increasing interest rates and slowing aggregate demand.
C) Decrease the discount rate, lowering interest rates, causing both costs and prices to fall.
D) Increase taxes, reducing costs, causing prices to fall.