Question 1

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

Accepted Answer

All three factors affect a firm's sensitivity of its earnings to the business cycle. Financial leverage amplifies the impact of business cycle fluctuations on a firm's earnings due to fixed financial obligations. Operating leverage does so through fixed operational costs, and the type of product influences how demand for it varies with economic conditions.

Question 2

Inflation is caused by ________________.

Accepted Answer

Inflation is primarily caused by a rapid growth of the money supply, which can lead to too much money chasing too few goods and services, driving up prices. Other factors such as increased demand, decreased supply, and rising production costs can also contribute to inflation. However, the most direct cause of inflation is an increase in the money supply.

Question 3

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

Accepted Answer

The ratio of the purchasing power of two economies is the real exchange rate. The balance of trade refers to the difference between a country's exports and imports. The real interest rate is the nominal interest rate adjusted for inflation. The nominal exchange rate refers to the rate at which one currency can be exchanged for another without any adjustment for inflation or purchasing power.

Question 4

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

Accepted Answer

The real interest rate measures the rate at which your purchasing power grows while holding an interest-earning investment, after taking into account the impact of inflation.

Question 5

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

Accepted Answer

The best example of a turnaround would be Kmart, as it was a struggling company that eventually made significant improvements to its financial and operational performance. Peter Lynch would classify Coca-Cola as a "stalwart" due to its consistent performance and reliable dividends, rather than a turnaround company.

Question 6

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?

Accepted Answer

The answer of Which one of the following is probably...

Question 7

______________ in interest rates are associated with stock market declines.

Accepted Answer

Unanticipated increases in interest rates are associated with stock market declines. This is because when interest rates unexpectedly rise, it becomes more expensive for companies to borrow money to invest in their businesses, which in turn can lead to lower stock prices. Anticipated increases in interest rates, on the other hand, may already be priced into the stock market and therefore have less of an impact. Anticipated decreases in interest rates tend to have the opposite effect, as they can stimulate economic growth and lead to higher stock prices. Unanticipated decreases in interest rates may also have a positive impact on the stock market, but to a lesser extent than anticipated decreases.

Question 8

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

Accepted Answer

When interest rates are expected to increase, the price of bonds (both short-term and long-term) will decrease. However, the decrease in price will be greater for long-term bonds. Therefore, buying short-term bonds would be the best choice as they are less sensitive to interest rate changes. Common and preferred stocks are not directly affected by interest rate changes.

Question 9

An example of a highly cyclical industry is _________.

Accepted Answer

The automobile industry is highly cyclical due to its dependence on consumer spending, which tends to fluctuate with economic cycles. In times of economic growth, consumers are more likely to purchase new cars, while in times of recession, they are more likely to hold onto their existing cars or purchase used cars instead. This creates a cyclical pattern of demand in the industry.

Question 10

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

Accepted Answer

An increase in the level of government spending would not be considered a supply shock as it does not affect the supply curve. Supply shocks are events that shift the supply curve, such as changes in input costs (like the price of imported oil) or unexpected disruptions in production (like frost damage to a crop). The education level of the average worker may affect productivity and therefore the supply curve, so it could be considered a supply shock.

Question 11

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

Accepted Answer

To obtain the real interest rate, we need to adjust the nominal risk-free rate for expected inflation. Therefore, we need to subtract expected inflation from the nominal risk-free rate to get the real interest rate.

Question 12

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

Accepted Answer

Stock price index and contracts/orders for nondefense capital goods are considered leading economic indicators because they provide a glimpse into future economic activity. The stock price index reflects market expectations of future profitability of firms, while contracts and orders for capital goods reflect expected future investments by firms.

Question 13

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

Accepted Answer

An increase in government budget deficit means that the government is spending more than its revenue, which leads to an increase in demand for funds. This increase in demand for funds would likely increase the interest rate in the economy (because of increased competition for funds), therefore increasing the cost of borrowing for businesses and individuals. This would lead to a decrease in demand for funds and thus shift the demand curve for funds to the left. Therefore, both I and III are correct. However, II is incorrect as an increase in the government's demand for funds would shift the demand curve for funds to the right, not left.

Question 14

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

Accepted Answer

Fed purchases of Treasury securities are a monetary policy tool. Social Security spending, Medicare spending, and changes in the tax rate are all examples of fiscal policy measures.

Question 15

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

Accepted Answer

A supply shock refers to an unexpected event that affects the production or supply of goods or services, leading to a sudden change in their availability or price. An increase in the price of imported oil or a decrease in its availability is an example of a supply shock as it affects the supply of oil and leads to a sudden increase in its price. A demand shock, on the other hand, refers to an unexpected event that affects consumer demand for goods or services, leading to a sudden change in their demand or price. A monetary shock refers to an unexpected event that affects the supply or demand for money, leading to a sudden change in interest rates or the availability of credit. Finally, a refinery shock refers to an unexpected event that affects the capacity or output of a refinery, leading to a sudden change in the supply or price of petroleum products.

Question 16

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.

Accepted Answer

Industries with below average sensitivity to economic conditions would be the best choice in a slow growth environment because they are less likely to be impacted by any negative economic events or downturns. This would provide a more stable investment option in uncertain times.

Question 17

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

Accepted Answer

A budget deficit occurs when government spending exceeds government revenues, resulting in a shortfall of funds that must be borrowed or printed to cover the difference. The other options are unrelated to this concept - the balance of trade refers to a country's imports and exports, GDP measures the value of goods and services produced within a country's borders, and the output gap is the difference between actual and potential economic output.

Question 18

Which one of the following is not a demand shock?

Accepted Answer

Improvements in education of U.S. workers is not a demand shock, as it does not directly affect the level of aggregate demand in the economy. A demand shock refers to any event that alters the level of aggregate demand, such as changes in government spending, changes in money supply, or changes in consumer spending. Improvements in education may have long-term effects on productivity and potential GDP, but they do not create an immediate change in aggregate demand.

Question 19

The average duration of unemployment is _________.

Accepted Answer

The average duration of unemployment is a lagging economic indicator, as it reflects the state of the economy after a period of time has passed. It measures the length of time individuals have been unemployed, which is a consequence of changes in economic conditions that have already occurred.

Question 20

Supply side economics tends to focus on _______________.

Accepted Answer

Supply side economics focuses on policies that increase the productive capacity of the economy, such as tax cuts and deregulation, in order to stimulate economic growth and job creation. It emphasizes the importance of incentivizing producers to invest and innovate, which in turn will lead to increases in output and ultimately benefit consumers through lower prices and expanded choice.

Quiz 12: Macroeconomic and Industry Analysis

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