Macroeconomic and Industry Analysis

1. In 2001, the _______ stock market had one of the worst performances among the
emerging market countries.

a.
Chinese

b.
South Africa

c.
Russian

d.
South Korean

2. In 2001, the _______ stock market had one of the best performances among the
emerging market countries.

a.
Chinese

b.
Singapore

c.
Russian

d.
Hong Kong

3. Long Term Capital Management is a _______.

a.
failed hedge fund

b.
successful mutual fund

c.
part of the European Monetary Union

d.
major leasing firm for capital equipment

4. In the 1990s, the "normal" P/E ratio has _______.

a.
increased slightly

b.
increased dramatically

c.
decreased slightly

d.
decreased dramatically

5. Since 1986, the purchasing power of the U.S. dollar has increased relative to the
purchasing power of ___ currency.

a.
Italian

b.
French

c.
German

d.
Canadian

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

7. The yield curve is a _______ economic indicator.

a.
leading

b.
lagging

c.
coincident

d.
mixed

8. The Conference Board's Consumer Confidence Index is released _______.

a.

daily

b.
weekly

c.
monthly

d.
quarterly

9. _________ is not an economic statistic provided by the Commerce Department.

a.
Business Inventories

b.
Money Supply

c.
Factory Orders

d.
Gross Domestic Product

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

a.
internet service providers

b.
coal mining

c.
business-to-business e-commerce

d.
auto manufacturing

11. __________ is an industry with below-average sensitivity to the state of the

economy.

a.
An asset play industry

b.
A cyclical industry

c.
A defensive industry

d.
A stalwart industry

12. The most widely used monetary policy tool is __________.

a.
altering the discount rate

b.
altering reserve requirements

c.
open market operations

d.
none of the above

13. __________ the ratio of actual output from factories to potential output from
factories.

a.
The capacity utilization rate is

b.
The participation rate is

c.
The unemployment rate is

d.
None of the above are

14. 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.
none of the above

15. Assume the U.S. government were to decide to increase its budget deficit. This
will cause __________ to increase.

a.
interest rates

b.
the output of the economy

c.
both a and b

d.
neither a nor b

16. A big increase in government spending is an example of __________.

a.
a demand shock

b.
a supply shock

c.
an unsurprising shock

d.
none of the above

17. GNP 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

18. Portfolio manager Peter Lynch would classify Coca-Cola as __________.

a.
worse tasting than Pepsi-Cola

b.
a slow grower

c.
a stalwart

d.
a turnaround

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.
None of the above

20. The analysis of the determinants of firm value is called ______________.

a.
fundamental analysis

b.
technical analysis

c.
momentum analysis

d.
None of the above

21. The gross domestic product (GDP), measures ________________________.

a.
the economy's total production of goods and services

b.
total goods and services consumed domestically

c.
excess goods and services produced domestically and sold in foreign
countries

d.
excess goods and services sold domestically, but produced in foreign
countries

22. The change in the real exchange rate measures ________________.

a.
how much more, or less, expensive foreign goods have become to U.S.
citizens

b.
the impact of inflation on the ability of U.S. firms to import and export goods

c.
the impact of changes in commission rates investors' readiness to trade

d.
None of the above

23. If you expect a larger interest rate increase than other market participants do,
you would

a.
buy long-term bonds

b.
buy short-term bonds

c.
buy long-term government bonds only

d.
buy short-term government bonds only

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

a.
add; default premium to the

b.
subtract; default premium from the

c.
add; expected inflation to

d.
subtract; expected inflation from

25. 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

26. 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

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

a.
Social Security spending

b.
Medicare spending

c.
government purchases of Treasury securities

d.
changes in the tax rate

28. Supply side economics tends to focus on ________________.

a.
government spending

b.
taxation

c.
monetary policy

d.
increasing productive capacity

29. __________ the amount by which government spending exceeds government

revenues.

a.
The balance of trade is

b.
The budget deficit is

c.
The gross domestic product is

d.
None of the above are

30. __________ probably the most direct way to stimulate or slow the economy.

a.

Fiscal policy is

b.
Monetary policy is

c.
Supply-side policy is

d.
None of the above are

31. An increase in the price of imported oil is an example of __________.

a.
a demand shock

b.
a supply shock

c.
an unsurprising shock

d.
none of the above

32. A decrease in the federal government deficit should __________ the level of
interest rates.

a.
increase

b.
decrease

c.
sometimes increase and sometimes decrease

d.
have no effect on

33. The average duration of unemployment is __________.

a.
a leading economic indicator

b.
a coincidental economic indicator

c.
a lagging economic indicator

d.
none of the above

34. __________ the ratio of purchasing power of two economies.

a.
The balance of trade is

b.
The inflation-adjusted exchange rate is

c.
The real interest rate is

d.
None of the above are

35. Demand-side economics is concerned with __________.

a.
government spending and tax levels

b.
monetary policy

c.
both a and b

d.
neither a nor b

36. __________ will determine the sensitivity of a firm's earnings to the business
cycle.

a.
Financial leverage

b.
Necessity of the firm's output

c.
Operating leverage

d.
All of the above

37. __________ is 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

38. An example of a highly cyclical industry is __________.

a.
the automobile industry

b.
the tobacco industry

c.
both a and b

d.
neither a nor b

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

a.
leading economic indicators

b.

coincidental economic indicators

c.
lagging economic indicators

d.
none of the above

40. A trough is __________.

a.
a transition from an expansion in the business cycle to the start of a
contraction

b.
a transition from a contraction in the business cycle to the start of an
expansion

c.
only something used by farmers to feed pigs and is not a term in investments

d.
none of the above

41. The ___ stage of the business cycle would be a good time to invest in firms
engaged in natural resource extraction and processing such as minerals and
petroleum.

a.
Peak

b.
Contraction

c.
Trough

d.
Expansion

42. Pharmaceuticals, food, and other necessities would be good performers during
the ___ stage of the business cycle.

a.
Peak

b.
Contraction

c.
Trough

d.
Expansion

43. Capital goods industries such as equipment, transportation or construction

would be good investments during the ___ stage of the business cycle.

a.
Peak

b.
Contraction

c.
Trough

d.
Expansion

44. Consumer durables and luxury items would be good investments during the ___
stage of the business cycle.

a.
Peak

b.
Contraction

c.
Trough

d.
Expansion

45. 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.
movie

46. The ____ industry had one of the highest returns in 2001.

a.
Wireless

b.
Networking and infrastructure

c.

Gold

d.
Financial services

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.
none of the above

48. __________ the ratio of the number of people classified as unemployed to the
total labor force.

a.
The capacity utilization rate is

b.
The participation rate is

c.
The unemployment rate is

d.
None of the above are

49. __________ the rate at which the general level of prices for goods and services is
rising.

a.
The exchange rate is

b.
The gross domestic product is

c.
The inflation rate is

d.
None of the above are

50. An analyst starts by examining the broad economic environment and then
considers the implications of the outside environment 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

51. Assume that the Federal Reserve decreases the money supply. This will cause
__________ to decrease.

a.
interest rates

b.
output of the economy

c.
both a and b

d.
neither a nor b

52. Fiscal policy has a __________ immediate impact than monetary policy on the
economy, and the formulation and implementation of fiscal policy is __________
than that of monetary policy.

a.
more, quicker

b.
more, slower

c.
less, quicker

d.
less, slower

53. 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

54. 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

55. 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.

a.
increase, increase

b.
increase, decrease

c.
decrease, increase

d.
decrease, decrease

56. The nominal interest rate is 8%. The inflation rate is 3%. The real interest
rate must be __________.

a.
-1.00%

b.
4.85%

c.
8.00%

d.
11.24%

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

a.
-6.00%

b.
4.00%

c.
5.77%

d.
14.40%

58. This year Berg-en-Dal, Inc., has fixed costs of 5M and profits of 2M. Its degree
of operating leverage (DOL) is _____.

a.
2.5

b.
3.0

c.
3.5

d.
7.0

59. The degree of operating leverage (DOL) measures the ___________________.

a.

sensitivity of profits to changes in sales revenues

b.
sensitivity of profits to changes in fixed costs

c.
sensitivity of profits to changes in the tax rate

d.
sensitivity of profits to changes in interest rates

60. Which of the following is not a stage in the industry life cycle?

a.
maturity

b.
relative decline

c.
consolidation

d.
All of the above are stages of the industry life cycle

61. An investment strategy which entails shifting the portfolio into industry sectors
that are forecast to outperform others based on macroeconomic forecasts is ___ .

a.
Sector rotation

b.
Contraction/expansion analysis

c.
Life cycle analysis

d.
None of the above

62. Two firms, A and B, both produce gadgets. The price of gadgets are $2 each.
Firm A has total fixed costs of $1,000,000 and variable costs of $1.00 per gadget.
Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget.
The corporate tax rate is 40%. If the economy is strong, each firm will sell
2,000,000 gadgets. If the economy enters a recession, each firm will sell 1,000,000
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

63. Two firms, A and B, both produce gadgets. The price of gadgets are $2 each.
Firm A has total fixed costs of $1,000,000 and variable costs of $1.00 per gadget.
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, each firm will sell
2,000,000 gadgets. If the economy enters a recession, each firm will sell 1,000,000
gadgets. If the economy enters a recession, the after-tax profit of Firm B will be
__________.

a.
$0

b.
$90,000

c.
$210,000

d.
$300,000

64. Two firms, A and B, both produce gadgets. The price of gadgets are $2 each.
Firm A has total fixed costs of $1,000,000 and variable costs of $1.00 per gadget.
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, each firm will sell
2,000,000 gadgets. If the economy enters a recession, each firm will sell 1,000,000
gadgets. If the economy is strong, the after-tax profit of Firm A will be
__________.

a.

$300,000

b.
$540,000

c.
$700,000

d.
$1,000,000

65. Two firms, A and B, both produce gadgets. The price of gadgets are $2 each.
Firm A has total fixed costs of $1,000,000 and variable costs of $1.00 per gadget.
Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget.
The corporate tax rate is 40%. If the economy is strong, each firm will sell
2,000,000 gadgets. If the economy enters a recession, each firm will sell 1,000,000
gadgets. If the economy is strong, the after-tax profit of Firm B will be
__________.

a.
$450,000

b.
$540,000

c.
$600,000

d.

$720,000

66. If the Federal Reserve unexpectedly shifts to a more restrictive monetary policy,
__________ is the most likely to occur in the short run.

a.
an increase in the velocity of money

b.
an increase in real GNP

c.
an increase in the real interest rate

d.
an increase in unemployment

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 are expected
to grow at 10-15% per year over the next three years.
(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.
Reference: Ref. 12-1

Characteristics 4 and 5 would indicate that the industry is in the ___ stage.

a.
Start-up

b.
Consolidation

c.
Maturity

d.
Relative decline

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 are expected
to grow at 10-15% per year over the next three years.
(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.
Reference: Ref. 12-1

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 the above

69. 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.
(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.
Reference: Ref. 12-1

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.
none of the above

70. 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.
(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.
Reference: Ref. 12-1

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.
none of the above

71. Counter-cyclical 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.

72. 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.

73. 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, causing both costs and
prices to fall.

d.
Increase taxes, reducing costs, causing prices to fall