Deck 5: Economic and Industry Analysis

Question 1

A federal deficit will always expand the money supply.

Answer 1

False

Question 2

During President Reagan's first term,the three-year tax cut and negotiated cuts in government spending reduced inflation dramatically and sparked growth in the GNP,but also boosted the federal deficit to record levels.

Answer 2

True

Question 3

If the government would stick to the goals of the Employment Act of 1946,economic policy would be coordinated.

Answer 3

False

Question 4

Coincident indicators are of major importance to investors because they accurately predict the timing of business cycle changes.

Question 5

It is critical for financial analysts to specialize in a particular industry or group or related industries because of the large variety of factors which affect each industry significantly.

Question 6

Fiscal policy involves government spending and taxation policies.

Question 7

Past information can be extrapolated into the future to provide an accurate forecast.

Question 8

When comparing international growth in real GDP between 1993 and 2005,the United States,Japan,China,Germany and the United Kingdom,the United States clearly is at the top of the group of countries.

Question 9

It is possible for any gain in real GDP to be completely offset by the rate of inflation.

Question 10

President George W.Bush took office in January of 2001 and inherited a crumbling economy that went in to recession of March of 2001.

Question 11

Between 1977 and 2007 the U.S.government budget has showed a surplus in only a few years.

Question 12

An increase in reserve requirements by the Federal Reserve would decrease the money supply.

Question 13

The Federal Reserve Board of Governors controls money supply and interest rates through its monetary policy.

Question 14

The most positive long-term sign of economic growth is probably slow,steady,predictable growth in the money supply.

Question 15

An economic forecast will usually start with an analysis of the government's economic plan.

Question 16

The U.S.budget deficit has been steadily growing since the beginning of 2001 because of the recession,tax cuts and the war in Iraq.

Question 17

The valuation process begins with an industry analysis.

Question 18

Surpluses have a tendency to reduce economic growth.

Question 19

Subjective beliefs and judgments are usually eliminated from economic forecasts.

Question 20

Fundamental analysis relies on forecasts of economic,industry and company variables.

Question 21

During recessions,it is common for imports to increase because people buy more cheap foreign goods.

Question 22

Monetary policy can be implemented very quickly to reinforce fiscal policy or,when necessary,to offset the effects of fiscal policy.

Question 23

In the last few years (since 2001),the trade deficit has increased dramatically.

Question 24

The fact that many studies have found a significant relationship between the money supply and stock prices has been quite helpful to investors.

Question 25

High interest rates in the United States relative to foreign interest rates have a tendency to attract foreign investors to the U.S.money markets.

Question 26

One sign that the recession beginning in 1990 was very painful was that many large companies such as AT&T,IBM and GM announced significant reductions in their work forces.

Question 27

When the dollar increases relative to foreign currencies,foreign goods become more expensive and consumers spend less money on imports.

Question 28

Various industries are so different that no common factors exist among them for purposes of analysis.

Question 29

Gross Domestic Product (GDP)measures only output from U.S.factories and consumption within the United States.

Question 30

Gross Domestic Product (GDP)measures the world wide production of all U.S.companies,firms and enterprises.

Question 31

The composite index of leading indicators has shown little variation in its ability to predict.

Question 32

The most widely used tool of monetary policy is open market operations.

Question 33

The Federal Open Market Committee (FOMC)determines the monetary policy for the U.S.economy.

Question 34

Leading indicators change direction in advance of general business conditions and are of prime importance to investors who want to forecast rising profits and stock prices.

Question 35

The change in real GDP is often inversely related to inflation.

Question 36

Purchasing securities in open market operations by the Federal Reserve has the same effect as increasing reserve requirements.

Question 37

Leading indicators tend to give longer warnings before peaks than troughs.

Question 38

The U.S.government has had only ten years between 1977 and 2007 where a surplus occurred because government revenues were greater than expenditures.

Question 39

Every year since 1980,the U.S.has imported more goods than it has exported.

Question 40

Real GDP and the consumer price index appear to move up and down together.

Question 41

According to the traditional definitions,a recession is two or more quarters of

A)Negative nominal Gross Domestic Product (GDP)growth
B)Negative real GDP growth
C)A rate of inflation which exceeds real GDP growth
D)Declining growth in real past GDP

Question 42

The quantity theory of money states that as the supply of money increases relative to the demand for money,people will make adjustments in their portfolios of assets.First,they will buy bonds,stocks,then real assets.

Question 43

The housing industry has historically done poorly during recessionary periods.

Question 44

Expansions of economic activity during the eight peace time business cycles from February 1945 to November of 2001 have averaged approximately 63 months.

Question 45

What is the difference between real GDP and inflation-adjusted GDP?

A)Real GDP is stated in current dollars
B)Inflation-adjusted,or nominal GDP reflects output in physical terms
C)There is no difference between the two
D)None of the above

Question 46

Fiscal policy which results in a deficit will cause more inflation when it finances the deficit through

A)International currency exchange
B)The sale of treasury securities to the Federal Reserve
C)The sale of treasury securities to individuals in the private sector
D)None of the above

Question 47

The difference between GNP and GDP is that GDP only measures output from U.S.factories and consumption in the U.S.

Question 48

It is estimated that the U.S.automobile industry accounts for more than 4 percent of the GDP.

Question 49

The Standard and Poor's 500 Index had one of the worst performance records in history between 2000 and the beginning of 2003.

Question 50

The Federal Reserve Bank's buying and selling of securities for its own portfolio is known as open market operations.

Question 51

Since the late 1980s,the Fed began to take a balanced approach of controlling interest rates and money supply growth,rather than focusing solely on the money supply.

Question 52

The first step in any stock valuation is

A)Economic analysis
B)An accurate stock market prediction
C)Financial analysis
D)Industry analysis
E)Technical analysis

Question 53

Technology companies such as Cisco,Oracle,IBM,Intel and Sun Microsystems are somewhat cyclical in that they depend on high volume to maintain profitability.

Question 54

The National Bureau of Economic Research revised its definition of a recession in 2001 as follows: A recession is

A)Two or more quarters of negative GDP growth
B)A significant decline in economic activity spread across the economy and lasting more than a few months
C)A decline in industrial production lasting more than one year
D)A decline in the growth rate of real GDP by more than 2 percent in any one quarter

Question 55

Which of the following statements is ?

A)Its open-market activity is believed by many to be an excellent indicator of the Federal Reserve's attitude toward the economy
B)Money market funds and consumer behavior restrict the ability of the Federal Reserve to control the money supply
C)In the early 1980s the Federal Reserve reversed its historical policy by emphasizing the growth of the money supply rather than only influencing interest rates
D)All of the above are true

Question 56

Which of the following is not a goal of the federal government economic policy as established by the Employment Act of 1946.

A)Low inflation
B)High levels of employment
C)Balance federal budgets
D)Economic growth

Question 57

The most widely used tool of the Federal Reserve

A)Is buying and selling securities for its own portfolio
B)Changing the interest rate charged to commercial banks on very short-term loans
C)Changing reserve requirements on commercial bank time or demand deposits
D)Fiscal policy
E)None of the above

Question 58

If the Fed buys securities,the money supply goes down,along with interest rates.

Question 59

Based on all recessions since 1945,contractions of economic cycles lasted an average of two years.

Question 60

For the investor's purposes,a normal business cycle (peak to peak or trough to trough)lasts approximately _________ as reported by the National Bureau of Economic Research based on the last 8 peace time business cycles.

A)Ten months
B)Eleven months
C)Forty-six months
D)Thirty four months
E)Sixty-three months

Question 61

Economic analysis is important for investors because they need to anticipate

A)Changes in corporate profits due to business cycle impacts
B)Growth in various industry segments based on changing economic trends
C)Low foreign trade might effect U.S.companies
D)All of the above

Question 62

While the money supply has historically been popular as an indicator of the stock market,

A)Studies have shown there is not a strong relationship between the two variables
B)Money supply growth and stock prices have turning points too similar to really be of value
C)Money supply does not really explain the majority of economic behavior
D)More than one of the above

Question 63

Which of the following industries is LEAST sensitive to changes in the business cycle?

A)Manufactures of business plant and equipment
B)Machine tools and special equipment,such as for pollution control
C)Industries specializing in high technology
D)All of the above are equally sensitive to changes in the business cycle

Question 64

Fiscal policy concerns the implementation of the government's

A)Spending and taxing plans
B)Money supply and interest rate strategy
C)Foreign trade policy
D)Attitude towards business investment

Question 65

Which of the following statements about supply and demand relationships and their effects on pricing structure is NOT ?

A)The relatively high U.S.wage rate has adversely affected demand for U.S.produced goods
B)There are a few common cost factors which affect many basic U.S.industries
C)Sources of raw materials imported to the U.S.may be cut off,greatly increasing the cost of producing with those materials from other sources
D)All of the above are true

Question 66

Some of the major lagging indicators would be:

A)Money supply (M2); consumer expectations,stock prices (S&P 500)
B)Personal income,employees on nonagricultural payrolls; industrial production
C)Average prime rate charged by banks; labor cost per unit of output; commercial and industrial loans outstanding
D)All of the above are lagging indicators

Question 67

The primary purpose of fundamental stock valuation is

A)To eliminate stock of those companies that are potential losers from the portfolio
B)To identify for purchase those companies that are fundamentally undervalued
C)To learn to identify peaks and troughs of the business cycle
D)Two of the above.

Question 68

Some of the major leading indicators would be:

A)Money supply (M2); consumer expectations,stock prices (S&P 500)
B)Personal income,employees on nonagricultural payrolls; industrial production
C)Average prime rate charged by banks; labor cost per unit of output; commercial and industrial loans outstanding
D)All of the above are leading indicators

Question 69

In order to stimulate the economy out of the 1990-1991 recession,the Federal Reserve Board:

A)Printed more money than they have in decades
B)Did everything they could to see that the federal deficit was reduced as much as possible
C)Drove interest rates to their lowest levels in decades
D)Lowered taxes

Question 70

The composite index of leading indicators,made up of ten leading indicators,has historically

A)Not always preceded changes in the business cycle
B)Given roughly the same notice at peaks as at roughs
C)Varied widely in its timing of notice at peaks and troughs
D)More than one of the above

Question 71

All of the following are disadvantages of fiscal policy,except:

A)A long implementation lag
B)It may be politically motivated
C)It may be economically motivated
D)Congress must approve the budgets and develop the tax laws.

Question 72

Of the predictors of economic patterns and stock market movements,the best is

A)The money supply
B)The level of interest rates
C)The ten leading indicators
D)No one variable is best,as many as possible should be considered

Question 73

All of the following are goals of monetary and fiscal policy,except:

A)Stable prices
B)Business stability at high levels of production
C)Sustained economic growth
D)A balance in domestic payments

Question 74

The primary tools used to stimulate economic activity are:

A)International banking policies
B)Monetary and fiscal policy
C)Tax policy and interest rates
D)Imports and exports.

Question 75

The National Bureau of Economic Research publishes information about economic indicators in its monthly Survey of Current Business.The most important indicators to investors are the

A)Leading indicators
B)Coincident indicators
C)Lagging indicators
D)Market indicators
E)None of the above

Question 76

Since the stock market is the most accurate and reliable of the ten leading indicators,

A)Investors need indicators which provide more lead time than the stock market
B)Investors are able to reduce or eliminate uncertainty about trading stocks
C)Investors are unable to forecast changes in stock prices
D)None of the above

Question 77

Which of the following industries is most sensitive to changes in the business cycle?

A)The tobacco and alcohol industries
B)The automobile and durable goods industries
C)The food and pharmaceutical industries
D)All of the above are equally sensitive to changes in the business cycle

Question 78

Which of the following industries will in general do better than other industries during a recession?

A)The movie industry
B)Television and radio
C)Housing and construction
D)More than one of the above

Question 79

Some of the major coincident indicators would be:

A)Money supply (M2); consumer expectations,stock prices (S&P 500)
B)Personal income,employees on nonagricultural payrolls; industrial production
C)Average prime rate charged by banks; labor cost per unit of output; commercial and industrial loans outstanding
D)All of the above are coincident indicators.

Question 80

Industries that are not closely related to business cycles include:

A)Industries that have products with low price elasticities
B)Industries that have products with high price elasticities
C)All industries are closely related to business cycles
D)The entertainment and amusement industries,for example