Deck 17: Macroeconomic and Industry Analysis

Question 1

If the economy is shrinking, firms with high operating leverage will experience

A)larger decreases in profits than firms with low operating leverage.
B)similar decreases in profits as firms with low operating leverage.
C)smaller decreases in profits than firms with low operating leverage.
D)no change in profits.

Answer 1

A

Question 2

If the economy is growing, firms with high operating leverage will experience

A)higher increases in profits than firms with low operating leverage.
B)similar increases in profits as firms with low operating leverage.
C)smaller increases in profits than firms with low operating leverage.
D)no change in profits.

Answer 2

A

Question 3

The stock price index and new orders for nondefense capital goods are

A)leading economic indicators.
B)coincidental economic indicators.
C)lagging economic indicators.
D)not useful as economic indicators.

Answer 3

A

Question 4

A peak 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)a depression that lasts more than three years.
D)only a feature of geography and not an investment term.

Question 5

An example of a highly cyclical industry is

A)the automobile industry.
B)the tobacco industry.
C)the food industry.
D)the automobile industry and the tobacco industry.

Question 6

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)a depression that lasts more than three years.
D)only something used by farmers to feed pigs and not an investment term.

Question 7

If the economy is shrinking, firms with low operating leverage will experience

A)larger decreases in profits than firms with high operating leverage.
B)similar decreases in profits as firms with high operating leverage.
C)smaller decreases in profits than firms with high operating leverage.
D)no change in profits.

Question 8

A top-down analysis of a firm starts with

A)the relative value of the firm.
B)the absolute value of the firm.
C)the domestic economy.
D)the global economy.

Question 9

The most widely used monetary tool is

A)altering the discount rate.
B)altering the reserve requirements.
C)open-market operations.
D)altering marginal tax rates.

Question 10

The "real," or inflation-adjusted, exchange rate is

A)the balance of trade.
B)the budget deficit.
C)the purchasing-power ratio.
D)unimportant to the Canadian economy.

Question 11

Monetary policy is determined by

A)government budget decisions.
B)Prime minister's mandates.
C)the Governing Council of the Bank of Canada
D)congressional actions.

Question 12

The "normal" range of price-earnings ratios for the S&P 500 Index is

A)between 2 and 10.
B)between 5 and 15.
C)less than 8.
D)between 12 and 25.

Question 13

If the economy were going into a recession, an attractive industry to invest in would be the

A)automobile industry.
B)medical services industry.
C)construction industry.
D)automobile and construction industries.

Question 14

GDP 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.

Question 15

The average duration of unemployment and changes in the consumer price index for services are

A)leading economic indicators.
B)coincidental economic indicators.
C)lagging economic indicators.
D)composite economic indicators.

Question 16

Industrial production 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.

Question 17

A firm in an industry that is very sensitive to the business cycle will likely have a stock beta

A)greater than 1.0.
B)equal to 1.0.
C)less than 1.0 but greater than 0.0.
D)equal to or less than 0.0.

Question 18

A rapidly growing GDP indicates a(n) ______ economy with ______ opportunity for a firm to increase sales.

A)stagnant; little
B)stagnant; ample
C)expanding; little
D)expanding; ample

Question 19

A declining GDP indicates a(n) ______ economy with ______ opportunity for a firm to increase sales.

A)stagnant; little
B)stagnant; ample
C)expanding; little
D)expanding; ample

Question 20

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.
C)smaller increases in profits than firms with high operating leverage.
D)no change in profits.

Question 21

________ 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
B)Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax shelter benefits
C)Income redistribution payments will exert little impact on real aggregate supply as they do not consume resources directly
D)A tax reduction will increase the disposable income of households, and thus, the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus

Question 22

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; hold steady

Question 23

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
B)more; slower
C)less; quicker
D)less; slower

Question 24

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' per widget.Firm B has total fixed costs of $240,000 and variable costs of 75'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. Calculate firm B's degree of operating leverage.

A).714
B)9.09
C)7.86
D)7.14

Question 25

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.
C)the performance of firms will more closely track the performance of the overall industry.
D)it is difficult to predict which firms will succeed and which firms will fail, and industry growth is very rapid.

Question 26

Fiscal policy is difficult to implement quickly because

A)it requires political negotiations.
B)much of government spending is nondiscretionary and cannot be changed.
C)increases in tax rates affect consumer spending gradually.
D)it requires political negotiations, and much of government spending is nondiscretionary and cannot be changed.

Question 27

If the currency of your country is depreciating, the result should be to ______ exports and to _______ imports.

A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question 28

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' per widget.Firm B has total fixed costs of $240,000 and variable costs of 75' 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. Calculate firm A's degree of operating leverage.

A)11.0
B)2.86
C)9.09
D)1.00

Question 29

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."
C)is unrelated to unemployment rates.
D)is the rate at which the general level of prices is increasing, and rates are high when the economy is considered to be "overheated."

Question 30

The industry life cycle is described by which of the following stage(s)?

A)Start-up
B)Consolidation
C)Absolute decline
D)Start-up and consolidation

Question 31

The North American Industry Classification System (NAICS) codes

A)are for firms that operate in the NAFTA region.
B)group firms by industry.
C)are a perfect classification system for firms.
D)are for firms that operate in the NAFTA region and group firms by industry.

Question 32

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'per widget.Firm B has total fixed costs of $240,000 and variable costs of 75' 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. If the economy is strong, the after-tax profit of Firm B will be

A)$0.
B)$6,000.
C)$36,000.
D)$60,000.

Question 33

Which of the following are not examples of defensive industries?

A)Food producers
B)Durable goods producers
C)Pharmaceutical firms
D)Public utilities

Question 34

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

Question 35

If the currency of your country is appreciating, the result should be to ______ exports and to _______ imports.

A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question 36

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'per widget.Firm B has total fixed costs of $240,000 and variable costs of 75' 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. If the economy is strong, the after-tax profit of Firm A will be

A)$0.
B)$6,000.
C)$36,000.
D)$60,000.

Question 37

Classifying firms into groups, such as _________, provides an alternative to the industry life cycle.

A)slow-growers
B)stalwarts
C)Counter-cyclicals
D)slow-growers and stalwarts

Question 38

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.
B)industry growth is very rapid.
C)firms pay a high level of dividends.
D)it is difficult to predict which firms will succeed and which firms will fail, and industry growth is very rapid.

Question 39

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' per widget.Firm B has total fixed costs of $240,000 and variable costs of 75' 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. If the economy enters a recession, the after-tax profit of Firm A will be

A)$0.
B)$6,000.
C)$30,000.
D)$60,000.

Question 40

Assume the Canadian government was to decide to increase the budget field.Holding all else constant, this will cause ______ to decrease.

A)interest rates
B)government borrowing
C)unemployment
D)interest rates and government borrowing
E)None of the options are correct.

Question 41

The industry with the highest ROE in 2015-2016 was

A)major airlines.
B)trucking.
C)business software.
D)computer systems.

Question 42

In recent years, P/E multiples for S&P 500 companies have

A)ranged from -1 to -10.
B)ranged from 1 to 8.
C)ranged from 6 to 10.
D)ranged from 12 to 25.

Question 43

The industry with the lowest return in 2016 was

A)asset management.
B)telecom services.
C)health care.
D)business software.

Question 44

The industry with the highest return in 2016 was

A)trucking.
B)water utilities.
C)health plans.
D)asset management.

Question 45

According to Michael Porter, there are five determinants of competition.An example of _____ is when a buyer purchases a large fraction of an industry's output and can demand price concessions.

A)threat of entry
B)rivalry between existing competitors
C)pressure from substitute products
D)bargaining power of buyers

Question 46

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.
C)technical analysis.
D)fundamental analysis.

Question 47

Investors can ______ invest in an industry with the highest expected return by purchasing ______.

A)most easily; industry-specific iShares
B)not; industry-specific iShares
C)most easily; industry-specific ADRs
D)not; individual stocks

Question 48

If interest rates decrease, 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

Question 49

According to Michael Porter, there are five determinants of competition.An example of _____ is when the availability limits the prices that can be charged to customers.

A)threat of entry
B)rivalry between existing competitors
C)pressure from substitute products
D)bargaining power of buyers

Question 50

During which stage of the industry life cycle would a firm experience stable growth in sales?

A)Consolidation
B)Relative decline
C)Maturity
D)Start-up

Question 51

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30' per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the total revenue of firm C will be

A)$1,680,000.
B)$1,400,000.
C)$2,000,000.
D)$0.

Question 52

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30' per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the total cost of firm C will be

A)$1,680,000.
B)$1,170,000.
C)$750,000.
D)$420,000.

Question 53

The stock market exhibiting the highest U.S.dollar return in 2015 was

A)Japan.
B)Singapore.
C)Greece.
D)South Korea.

Question 54

According to Michael Porter, there are five determinants of competition.An example of _____ is the threat new competitors pose to existing competitors in an industry.

A)threat of entry
B)rivalry between existing competitors
C)pressure from substitute products
D)bargaining power of buyers

Question 55

A top-down analysis of a firm's prospects starts with

A)an examination of the firm's industry.
B)an evaluation of the firm's position within its industry.
C)a forecast of interest-rate movements.
D)an assessment of the broad economic environment.

Question 56

Assume the Canadian government was to decide to increase the budget field.Holding all else constant, this will cause ______ to increase.

A)interest rates
B)government borrowing
C)unemployment
D)interest rates and government borrowing

Question 57

Sector rotation

A)should always be carried out.
B)is never worthwhile.
C)is shifting the portfolio more heavily toward an industry or sector that is expected to perform well in the future.
D)can be implemented without cost.

Question 58

The life cycle stage in which industry leaders are likely to emerge is the

A)start-up stage.
B)maturity stage.
C)consolidation stage.
D)relative decline stage.

Question 59

According to Michael Porter, there are five determinants of competition.An example of _____ is when competitors seek to expand their share of the market.

A)threat of entry
B)rivalry between existing competitors
C)pressure from substitute products
D)bargaining power of buyers

Question 60

The emerging stock market exhibiting the highest local currency return in 2015 was

A)Russia
B)China.
C)Singapore.
D)Mexico.

Question 61

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30'per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the total revenue of firm C will be

A)$1,680,000.
B)$1,400,000.
C)$2,000,000.
D)$2,400,000.

Question 62

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30' per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the before-tax profit of firm C will be

A)$1,680,000.
B)$1,170,000.
C)$510,000.
D)$204,000.

Question 63

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30' per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the tax of firm C will be

A)$420,000.
B)$750,000.
C)$510,000.
D)$204,000.

Question 64

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30' per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the before-tax profit of firm C will be

A)$1,680,000.
B)$1,050,000.
C)$510,000.
D)$204,000.

Question 65

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30' per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50'per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the total cost of firm C will be

A)$1,680,000.
B)$1,170,000.
C)$1,350,000.
D)$420,000.

Question 66

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30'per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the tax of firm C will be

A)$1,680,000.
B)$750,000.
C)$510,000.
D)$204,000.

Question 67

If a firm's sales decrease by 15%, and profits decrease by 20% during a recession, the firm's operating leverage is

A)1.33.
B)0.75.
C)5.
D)-5.