Chapter 17 – Macroeconomic and Industry Analysis
17-1
Chapter 17
Macroeconomic and Industry Analysis
Multiple Choice Questions
1. A top down analysis of a firm starts with ____________.
A. the relative value of the firm
Difficulty: Easy
2. An example of a highly cyclical industry is ________.
D. A and B
E. B and C
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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3. Demand-side economics is concerned with _______.
A. government spending and tax levels
B. monetary policy
Difficulty: Easy
4. The most widely used monetary tool is ___________.
A. altering the discount rate
B. altering the reserve requirements
Difficulty: Easy
5. The “real”, or inflation-adjusted, exchange rate, is
A. the balance of trade.
B. the budget deficit.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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6. The “normal” range of price-earnings ratios for the S&P 500 Index is
A. between 2 and 10.
B. between 5 and 15.
Difficulty: Moderate
7. Monetary policy is determined by
A. government budget decisions.
Difficulty: Easy
8. A trough is ________.
A. a transition from an expansion in the business cycle to the start of a contraction
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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9. A peak is ________.
D. only something used by farmers to feed pigs and not an investment term
E. none of the above
Difficulty: Easy
10. If the economy is growing, firms with high operating leverage will experience
__________.
D. no change in profits.
E. none of the above.
Difficulty: Easy
11. If the economy is shrinking, firms with high operating leverage will experience
__________.
D. no change in profits.
E. none of the above.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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12. If the economy is growing, firms with low operating leverage will experience
__________.
A. higher increases in profits than firms with high operating leverage.
B. similar increases in profits as firms with high operating leverage.
Difficulty: Easy
13. If the economy is shrinking, firms with low operating leverage will experience
__________.
A. higher decreases in profits than firms with high operating leverage.
B. similar decreases in profits as firms with high operating leverage.
Difficulty: Easy
14. Industrial production refers to _________.
A. the amount of personal disposable income in the economy.
B. the difference between government spending and government revenues.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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15. GDP refers to _________.
A. the amount of personal disposable income in the economy.
B. the difference between government spending and government revenues.
Difficulty: Easy
16. A rapidly growing GDP indicates a(n) ______ economy with ______ opportunity for a
firm to increase sales.
A. stagnant; little
B. stagnant; ample
Difficulty: Easy
17. A declining GDP indicates a(n) ______ economy with ______ opportunity for a firm to
increase sales.
D. expanding; ample
E. stable; no
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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18. The average duration of unemployment and changes in the consumer price index for
services are _________.
A. leading economic indicators
B. coincidental economic indicators
Difficulty: Moderate
19. A firm in an industry that is very sensitive to the business cycle will likely have a stock
beta ___________.
D. equal to or less than 0.0
E. There is no relationship between beta and sensitivity to the business cycle.
Difficulty: Moderate
Chapter 17 – Macroeconomic and Industry Analysis
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20. If the economy were going into a recession, an attractive industry to invest in would be the
D. A and C
E. B and C
Difficulty: Easy
21. The stock price index and contracts and new orders for nondefense capital goods are
D. not useful as economic indicators.
E. none of the above.
Difficulty: Moderate
22. A firm in the early stages of the industry life cycle will likely have ________.
A. high market penetration.
B. high risk.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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23. Assume the U.S. government was to decide to increase the budget deficit. This action will
most likely cause __________ to increase
A. interest rates
B. government borrowing
Difficulty: Easy
24. Assume the U.S. government was to decide to decrease the budget deficit. This action will
most likely cause __________ to decrease
A. interest rates
B. government borrowing
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
17–10
25. Assume that the Federal Reserve decreases the money supply. This action will cause
________ to decrease.
A. interest rates
B. the unemployment rate
Difficulty: Easy
26. If the currency of your country is depreciating, the result should be to ______ exports and
to _______ imports.
A. stimulate, stimulate
Difficulty: Moderate
Chapter 17 – Macroeconomic and Industry Analysis
17–11
27. If the currency of your country is appreciating, the result should be to ______ exports and
to _______ imports.
A. stimulate, stimulate
B. stimulate, discourage
Difficulty: Moderate
28. Increases in the money supply will cause demand for investment and consumption goods
to _______ in the short run and cause prices to ________ in the long run.
D. decrease, decrease
E. be unaffected, be unaffected
Difficulty: Moderate
29. The North American Industry Classification System (NAICS)
A. are for firms that operate in the NAFTA region.
B. group firms by industry.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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30. If interest rates increase, business investment expenditures are likely to ______ and
consumer durable expenditures are likely to _________.
A. increase, increase
Difficulty: Moderate
31. Fiscal policy generally has a _______ direct impact than monetary policy on the economy,
and the formulation and implementation of fiscal policy is ______ than that of monetary
policy.
A. more, quicker
Difficulty: Moderate
Chapter 17 – Macroeconomic and Industry Analysis
17–13
32. Fiscal policy is difficult to implement quickly because
A. it requires political negotiations.
B. much of government spending is nondiscretionary and cannot be changed.
Difficulty: Easy
33. Inflation
A. is the rate at which the general level of prices is increasing.
B. rates are high when the economy is considered to be “overheated”.
Difficulty: Easy
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total
fixed costs of $500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs
of $240,000 and variable costs of 75 cents per widget. The corporate tax rate is 40%. If the
economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession,
each firm will sell 1,100,000 widgets.
Chapter 17 – Macroeconomic and Industry Analysis
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34. If the economy enters a recession, the after-tax profit of Firm A will be ________.
A. $0
B. $6,000
Difficulty: Moderate
35. If the economy enters a recession, the after-tax profit of Firm B will be _______.
A. $0
B. $6,000
Difficulty: Moderate
36. If the economy is strong, the after-tax profit of Firm A will be _______.
A. $0
B. $6,000
Difficulty: Moderate
Chapter 17 – Macroeconomic and Industry Analysis
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37. If the economy is strong, the after-tax profit of Firm B will be __________.
A. $0
B. $6,000
Difficulty: Moderate
38. Calculate firm A’s degree of operating leverage.
D. 1.00
E. none of the above.
Difficulty: Difficult
39. Calculate firm B’s degree of operating leverage.
A. .714
B. 9.09
Difficulty: Difficult
Chapter 17 – Macroeconomic and Industry Analysis
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40. Classifying firms into groups, such as _________ provides an alternative to the industry
life cycle.
A. slow-growers
B. stalwarts
Difficulty: Easy
41. Supply-side economists wishing to stimulate the economy are most likely to recommend
A. a decrease in the money supply.
B. a decrease in production output.
Difficulty: Moderate
42. Which of the following are not examples of defensive industries?
A. food producers.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
17–17
43. Which of the following are examples of defensive industries?
A. food producers.
B. durable goods producers.
Difficulty: Easy
44. ________ is a proposition that a strong proponent of supply side economics would most
likely stress.
A. Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower
interest rates as they depend on government revenues.
Difficulty: Moderate
Chapter 17 – Macroeconomic and Industry Analysis
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45. The industry life cycle is described by which of the following stage(s)?
A. start-up.
B. consolidation.
Difficulty: Easy
46. In the start-up stage of the industry life cycle
A. it is difficult to predict which firms will succeed and which firms will fail.
Difficulty: Easy
47. In the consolidation stage of the industry life-cycle
A. it is difficult to predict which firms will succeed and which firms will fail.
B. industry growth is very rapid.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
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48. In the maturity stage of the industry life cycle
A. the product has reached full potential.
B. profit margins are narrower.
Difficulty: Easy
49. In the decline stage of the industry life cycle
A. the product may have reached obsolescence.
B. the industry will grow at a rate less than the overall economy.
Difficulty: Easy
50. A variety of factors relating to industry structure affect the performance of the firm,
including
A. threat of entry.
B. rivalry between existing competitors.
Difficulty: Easy
Chapter 17 – Macroeconomic and Industry Analysis
17–20
51. The process of estimating the dividends and earnings that can be expected from the firm
based on determinants of value is called
A. business cycle forecasting.
B. macroeconomic forecasting.
Difficulty: Easy
52. The emerging market exhibiting the highest growth in real GDP in 2007 was
D. Russia
E. Malaysia
Difficulty: Moderate
53. The emerging stock market exhibiting the highest U.S. dollar return in 2007 was
D. Mexico
E. Brazil
Difficulty: Moderate