Question 1

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?

Accepted Answer

With the government issuing a $1 trillion bond, it will increase the demand for credit, which will lead to higher interest rates. This crowding out effect will make it harder and more expensive for businesses to borrow, which can affect their ability to invest and expand. Higher interest rates can also have a ripple effect on the economy and cause a decrease in consumer spending.

Question 2

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 _________.

Accepted Answer

The answer of Firm B produce gadgets.The price of gadgets...

Question 3

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

Accepted Answer

Corporate profits are closely linked to the health of the overall economy, and gross domestic product (GDP) is a key measure of economic performance. A strong GDP typically indicates healthy economic growth, which in turn can lead to increased consumer demand and higher corporate profits. Exchange rates, inflation, and budget deficits can also impact corporate profits, but these factors are less directly tied to economic growth than GDP.

Question 4

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.

Accepted Answer

The characteristics listed do not match the start-up stage, as they indicate a more mature industry with high penetration, price competition, and consolidation.

Question 5

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.

Accepted Answer

Characteristic 4 suggests that the market is in the maturity stage because the penetration rate is high and it will be difficult to increase further. Characteristic 5 also supports this as price wars are common in mature markets. The other characteristics such as growth rates, attempts to enter new markets, and new entrants suggest that the market is still dynamic, which is a common feature of the maturity stage. Additionally, the mention of consolidation in the industry indicates that players are trying to maintain profitability by merging, which is another hallmark of the maturity stage.

Question 6

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?

Accepted Answer

The breakeven point is the point at which the total revenue earned equals the total cost incurred.

Let x be the number of gadgets B must sell to break even.

Total Revenue = Price x Quantity = $2x

Total Cost = Fixed Cost + Variable Cost = $300,000 + $1.40x

At breakeven point, Total Revenue = Total Cost

$2x = $300,000 + $1.40x

$0.60x = $300,000

x = 500,000

Therefore, the breakeven number of gadgets B must sell to make a zero after tax profit is 500,000.

Question 7

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 ____________.

Accepted Answer

The stress on manufacturing ability during economic expansion indicates that the company's capacity utilization may be at its maximum or near it, leading to the need to turn down business due to an inability to meet demand. Therefore, the problem area is capacity utilization.

Question 8

The Fed funds rate is the __________.

Accepted Answer

The Fed funds rate is the interest rate that banks charge each other for overnight loans of deposits on reserve at the Federal Reserve.

Question 9

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?

Accepted Answer

If the supply of workers becomes inadequate to meet the demand, employers may have to offer higher wages to attract workers. This can create upward wage pressures and contribute to inflationary pressures in the economy.

Question 10

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

Accepted Answer

Supply-side economists believe that economic growth can be most effectively created by lowering taxes and decreasing regulation, which they argue will increase production, or supply. They argue that consumers will then benefit from a greater supply of goods and services at lower prices and that employment will increase.

Question 11

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

Accepted Answer

The Federal Reserve System (also known as the Fed) is the central bank of the United States and is responsible for controlling the supply of funds in the economy through its monetary policy. It controls the money supply and interest rates, making it the primary entity in control of the supply of funds.

Question 12

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.

Accepted Answer

Characteristics 6 and 7 indicate that some manufacturers are able to develop niche markets based on their reputation, quality, and service, and that several manufacturers have merged, suggesting consolidation in the industry. These are both typical of an industry in the consolidation stage.

Question 13

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

Accepted Answer

Countercyclical fiscal policy involves increasing government spending or decreasing taxes during economic downturns (recessions) and decreasing government spending or increasing taxes during economic booms. This approach aims to stabilize the economy by counteracting the business cycle, hence planning government surpluses during booms and deficits during recessions.

Question 14

The goal of supply side policies is to _______.

Accepted Answer

The goal of supply side policies is to create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods, which helps to stimulate economic growth. This is typically achieved through measures such as reducing taxes and regulation, promoting entrepreneurship, and investing in human capital. The other options (increasing government involvement, maximizing tax revenues, and focusing on wealth redistribution) are more in line with demand side policies, which focus more on stimulating consumer demand as a way to drive economic growth.

Question 15

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

Accepted Answer

The answer of Which of the characteristics would be typical...

Question 16

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

Accepted Answer

Cyclical industries have a higher beta, indicating greater volatility in earnings and stock prices, while defensive industries tend to have lower beta, indicating less volatility. Since beta measures the volatility of a stock or portfolio in relation to the market, a beta greater than 1 means that the stock or portfolio is more volatile than the market. A beta less than 1 indicates that it is less volatile than the market.

Question 17

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

Accepted Answer

When the money supply is expanded at a rate that exceeds the increase in goods and services, there will be more money chasing the same amount of goods, resulting in increased inflation.

Question 18

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

Accepted Answer

Maytag and computer chip manufacturers are examples of cyclical industries, as their demand and sales fluctuate with the economy. Kellogg's Frosted Flakes and Pfizer, on the other hand, are examples of non-cyclical industries, as their sales are less affected by economic changes.

Question 19

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?

Accepted Answer

When the dollar declines in value relative to the yen, U.S. goods become cheaper for Japanese consumers, leading to an increase in imports of U.S. goods into Japan.

Question 20

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?

Accepted Answer

Selling government bonds reduces the money supply and increases interest rates, which in turn slows aggregate demand and helps to slow the rate of inflation. Buying government bonds would increase the money supply and worsen inflation. Decreasing the discount rate would lower interest rates and encourage borrowing and spending, which would worsen inflation. Increasing taxes would also not directly reduce the money supply or interest rates, and may have a negative effect on economic growth.

Quiz 12: Macroeconomic and Industry Analysis