Deck 12: Macroeconomic and Industry Analysis

Question 1

Portfolio manager Peter Lynch would classify Coca-Cola as ________.

A)an asset play
B)a slow grower
C)a stalwart
D)a turnaround

Answer 1

C

Question 2

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

A)Internet service providers
B)Biotechnology
C)Wireless communication
D)Auto manufacturing

Answer 2

D

Question 3

According to ________ economists, the growth of the US 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)demand-side

Answer 3

C

Question 4

Everything else equal, if you expect a larger interest rate increase than other market participants, you should ________.

A)buy long-term bonds
B)buy short-term bonds
C)buy common shares
D)buy preferred shares

Question 5

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)Indexing

Question 6

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 7

A big increase in government spending is an example of ________.

A)a positive demand shock
B)a positive supply shock
C)a negative demand shock
D)a negative supply shock

Question 8

Inflation is caused by ________.

A)unions
B)rapid growth of money supply
C)excess supply
D)low rates of capacity utilisation

Question 9

Supply-side economics tends to focus on ________.

A)government spending
B)price controls
C)monetary policy
D)increasing productive capacity

Question 10

Which one of the following describes the amount by which government spending exceeds government revenues?

A)Balance of trade
B)Budget deficit
C)Gross domestic product
D)Output gap

Question 11

You estimate that the present value of a firm's cash flow is $15 million. The break-up value of the firm if you were to sell the major assets and divisions separately would give $20 million. This is an example of what Peter Lynch would call a/an ________.

A)stalwart
B)slow growth
C)star
D)asset play

Question 12

To obtain an approximate estimate of the real interest rate, one must ________ the nominal risk-free rate.

A)add the default premium to
B)subtract the default premium from
C)add the expected inflation to
D)subtract the expected inflation from

Question 13

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

Question 14

If you believe the economy is about to go into a recession you might change your asset allocation by selling ________ and buying ________.

A)growth shares; long-term bonds
B)long-term bonds; growth shares
C)defensive shares; growth shares
D)defensive shares; long-term bonds

Question 15

The analysis of the determinants of firm value is called ________.

A)fundamental analysis
B)technical analysis
C)momentum analysis
D)indexing

Question 16

The most widely used monetary policy tool is ________.

A)altering the discount rate
B)altering reserve requirements
C)open market operations
D)increasing the budget deficit

Question 17

An increase in the value of the yen against the US dollar can cause the Japanese automaker, Toyota, to either ________ on its US sales.

A)lose market share or reduce its profit margin
B)gain market share or reduce its profit margin
C)lose market share or increase its profit margin
D)gain market share or increase its profit margin

Question 18

The market value of all goods and services produced during a given time period is called ________.

A)GDP
B)industrial production
C)capacity utilisation
D)factory orders

Question 19

A top-down analysis of a firm's prospects starts with an analysis of the ________.

A)firm's position in its industry
B)local economy or even the global economy
C)industry
D)specific firm under consideration

Question 20

Which one of the following shares represents industries with below-average sensitivity to the state of the economy?

A)Financials
B)Technology
C)Food and beverage
D)Cyclicals

Question 21

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 22

The share price index and contracts and orders for non-defence capital goods are ________.

A)leading economic indicators
B)coincidental economic indicators
C)lagging economic indicators
D)leading and coincidental indicators respectively

Question 23

Order the following stages that occur after the start-up phase in the industry life cycle from earliest to latest:
I) maturity
II) relative decline
III. consolidation

A)III, I, II
B)I, III, II
C)III, II, I
D)I, II, III

Question 24

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

A)sector rotation
B)contraction/expansion analysis
C)life cycle analysis
D)business cycle shifting

Question 25

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)medical services

Question 26

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

Question 27

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%

Question 28

________ in interest rates are associated with share market declines.

A)Anticipated increases
B)Unanticipated increases
C)Anticipated decreases
D)Unanticipated decreases

Question 29

Assume that the Reserve Bank increases the money supply. This will cause ________.
I) interest rates to decrease
II) consumption and investment to decrease
III. inflation to fall

A)I only
B)I and II only
C)II and III only
D)I, II and III

Question 30

Everything else equal, an increase in the government budget deficit would ________.
I) increase the government's demand for funds II. shift the demand curve for funds to the left
III. increase the interest rate in the economy

A)II only
B)I and II only
C)I and III only
D)I, II and III

Question 31

Which one of the following is not a US supply shock?

A)Unions force an increase in national wage rates
B)30% drop in oil supply from the Middle East
C)Extended droughts reduce US food production by 25%
D)Increases in Chinese purchases of US exports

Question 32

Which of the following affects a firm's sensitivity of its earnings to the business cycle?
I) Financial leverage II. Operating leverage
III. Type of product

A)II only
B)I and II only
C)I and III only
D)I, II and III

Question 33

Which one of the following is probably the most direct and immediate way to stimulate or slow the economy, although it is not very useful for fine-tuning economic performance?

A)Fiscal policy
B)Monetary policy
C)Supply-side policy
D)Rising minimum wages

Question 34

Which of the following is the rate at which the general level of prices for goods and services is rising?

A)The exchange rate
B)The gross domestic product growth rate
C)The inflation rate
D)The real interest rate

Question 35

Which of the following describes 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

Question 36

If you are going to earn abnormal returns based on your macroeconomic analysis it will most likely have to be because ________.

A)you have more information than others
B)you are a better analyst than others
C)you have the same information as others
D)you are an equally good analyst as others

Question 37

Increases in the money supply will cause demand for investment and consumption goods to ________ in the short run and may cause prices to ________ in the long run.

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

Question 38

In macroeconomic terms an increase in the price of imported oil or a decrease in the availability of oil is an example of a ________.

A)demand shock
B)supply shock
C)monetary shock
D)refinery shock

Question 39

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% inflation

Question 40

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)low R&D spending

Question 41

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 three years, still well above the economic growth rate.
2) Some US manufacturers are attempting to enter fast-growing non-US 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 US 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 US 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 the characteristics listed match the start-up stage

Question 42

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.

Question 43

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

Question 44

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 break-even 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

Question 45

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)maximise tax revenues of the government
D)focus more on wealth redistribution policies

Question 46

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 three years, still well above the economic growth rate.
2) Some US manufacturers are attempting to enter fast-growing non-US 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 US 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 US 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

Question 47

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

A)Exchange rates
B)Inflation
C)Gross domestic product
D)Budget deficits

Question 48

Which of the following comprise 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

Question 49

The decline in the value of the Australian dollar relative to the yen will have what impact on the purchase of Australian goods in Japan?

A)Australian goods will increase in cost and Japan will import more.
B)Australian goods will increase in cost and Japan will import less.
C)Australian goods will decrease in cost and Japan will import more.
D)Australian goods will increase in cost and Japan will export less.

Question 50

Which of the following are examples of cyclical industries?
I) Maytag
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

Question 51

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 three years, still well above the economic growth rate.
2) Some US manufacturers are attempting to enter fast-growing non-US 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 US 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 US 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 characteristics fit the maturity stage

Question 52

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 $1.00 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 it 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

Question 53

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 it 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

Question 54

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 three years, still well above the economic growth rate. 2) Some US manufacturers are attempting to enter fast-growing non-US 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 US 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 US 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

Question 55

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

Question 56

Stalwarts are typically found in the ________ stage of the industry life cycle.

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

Question 57

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

Question 58

Cash cows are typically found in the ________ stage of the industry life cycle.

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