Deck 12: Macroeconomic and Industry Analysis

Question 1

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

Answer 1

A

Question 2

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

Answer 2

C

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

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

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

Question 5

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

A) internet service providers
B) biotechnology
C) wireless communication
D) auto manufacturing

Question 6

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 7

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 8

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 9

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 10

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

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

Question 11

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 12

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

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

Question 13

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 14

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

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

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 big increase in government spending is an example of a ________.

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

Question 17

In 1980 the dollar-yen exchange rate was about $.0045. In 2017 the yen-dollar exchange rate was about 91 yen per dollar. A Japanese producer would have had to increase the dollar price of a good sold in the United States by approximately ________ to maintain the same yen price in 2017.

A) 144%
B) 79.5%
C) 265.4%
D) 36%

Question 18

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 be $20 million. This is an example of what Peter Lynch would call ________.

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

Question 19

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

Question 20

Which of the following companies is the best example of a turnaround?

A) Coca-Cola
B) Microsoft
C) ExxonMobil
D) Chrysler

Question 21

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

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

Question 22

________ in interest rates are associated with stock market declines.

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

Question 23

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 24

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

A) unions force an increase in national wage rates.
B) the oil supply from the Middle East drops 30%.
C) extended droughts reduce U.S. food production 25%.
D) chinese purchases of U.S. exports increase.

Question 25

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 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

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 28

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 29

The stock price index and contracts and orders for nondefense capital goods are ________.

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

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

Supply-side economics tends to focus on ________.

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

Question 32

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 33

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 34

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 35

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 36

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 37

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 38

The average duration of unemployment is ________.

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

Question 39

Inflation is caused by ________.

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

Question 40

An example of a highly cyclical industry is the ________.

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

Question 41

Members of 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 42

Order the following stages in the industry life cycle from the earliest to latest to 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

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 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, the firm 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 44

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 45

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 46

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

A) −6%
B) 4%
C) 5.77%
D) 14.4%

Question 47

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 48

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 49

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 50

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 51

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 52

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

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

Question 53

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 54

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 55

Firm B produces 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, the firm 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 56

Which of the following describes the percentage of the total labor force that has yet to find work?

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

Question 57

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 58

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 59

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 60

An investment strategy that entails shifting the portfolio into industry sectors that are expected 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 61

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 and are expected to grow at 10%-15% per year over the next 3 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 United States 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 United States 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 62

Which of the following are examples of cyclical industries?
I) Washing Machines
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 63

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 and causing both costs and prices to fall.
D) Increase taxes, reducing costs and causing prices to fall.

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 and are expected to grow at 10%-15% per year over the next 3 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 United States 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 United States 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 these options

Question 65

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 66

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

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

Question 67

Countercyclical 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 68

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 and are expected to grow at 10%-15% per year over the next 3 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 United States 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 United States 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 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 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 72

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 73

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 74

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 75

The classification system used to classify firms into industries is now called the ________ code.

A) SIC
B) NAICS
C) ISO 57
D) ISM

Question 76

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

A) exchange rates
B) inflation
C) gross domestic product
D) budget deficits

Question 77

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 and are expected to grow at 10%-15% per year over the next 3 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 United States 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 United States 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.
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 of these options

Question 78

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 exists in the area of ________.

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

Question 79

Firm B produces 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 80

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.