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55) 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%
56) 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%
57) 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
58) 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
59) 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
60) 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
61) 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
62) 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
63) 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
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 4 and 5 would indicate that the industry is in the ________ stage.
A) start-up
B) consolidation
C) maturity
D) relative decline
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 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
66) 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
67) 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
68) 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.
69) 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.
70) 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.
71) 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.
72) 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
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
74) What economic variable is most closely associated with increasing corporate profits?
A) exchange rates
B) inflation
C) gross domestic product
D) budget deficits
75) 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
76) 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
77) 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
78) 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
79) 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
80) The classification system used to classify firms into industries is now called the ________
code.
A) SIC
B) NAICS
C) ISO 57
D) ISM
81) During 2004 China increased its use of global oil by 40%. This followed a 100% increase
during the previous 5 years. How do economists refer to this kind of economic event?
A) demand shock
B) equilibrium event
C) expanding commodity event
D) supply shock
82) Whenever OPEC attempts to influence the price of oil by significantly altering production,
economists refer to this type of event as a ________.
A) demand shock
B) equilibrium event
C) expanding commodity event
D) supply shock
83) Items that are ________ and product purchases for which ________ is not important tend to
be less cyclical in nature.
A) necessities; income
B) luxuries; leverage
C) discretionary goods; time of purchase
D) produced with high fixed costs; entertainment
84) Cash cows are typically found in the ________ stage of the industry life cycle.
A) start-up
B) consolidation
C) maturity
D) relative decline
85) At what point in the industry life cycle are inefficiencies in competitors most likely to be
removed?
A) start-up stage
B) consolidation stage
C) maturity stage
D) relative decline stage
86) Stalwarts are typically found in the ________ stage of the industry life cycle.
A) start-up
B) consolidation
C) maturity
D) relative decline
87) Large-growth companies generally emerge in the ________ stage.
A) start-up
B) consolidation
C) maturity
D) relative decline
88) Which of the following are barriers to entry?
I. Large economies of scale required to be profitable
II. Established brand loyalty
III. Patent protection for the firm's product
IV. Rapid industry growth
A) I and II only
B) I, II, and III only
C) II, III, and IV only
D) III and IV only
89) Stock prices tend to ________ when corporate earnings ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) none of the options
90) Stock prices are ________ measures of firm value.
A) backward-looking
B) forward-looking
C) coincident
D) lagging
91) Which industry had the highest ROE in 2016 according to the text?
A) electric utilities
B) business software
C) aerospace
D) money center banks
92) Which industry had the highest stock price performance in 2017 according to the text?
A) biotech
B) electric utilities
C) computer systems
D) airlines
93) Which industry would you expect to find the highest dividend payout yields?
A) biotech
B) technology
C) electric utility
D) business software
