Chap 012

Chapter 12 - Macroeconomic and Industry Analysis
Chapter 12
Macroeconomic and Industry Analysis

Multiple Choice Questions

1. A top-down analysis of a firm's prospects starts with an analysis of the ____.
A. firm's position in its industry
B. U.. economy or e!en the "lo#al economy
C. industry
$. specific firm under consideration

2. In 1%&' the dollar to yen e(chan"e rate was a#out )'.''*+. In 2'', the yen to dollar
e(chan"e rate was a#out 121 yen per dollar. A -apanese producer would ha!e had to increase
the dollar price of a "ood sold in the U.. #y _____ to maintain the same yen price in 2'',.
A. &..,/
B. ,%.+/
C. 0+.*/
$. +%../

.. An increase in the !alue of the yen a"ainst the U.. dollar can cause the -apanese
automa1er2 3oyota2 to either _____________ on its U.. sales.
A. lose mar1et share or reduce its profit mar"in
B. "ain mar1et share or reduce its profit mar"in
C. lose mar1et share or increase its profit mar"in
$. "ain mar1et share or increase its profit mar"in

*. 4ou estimate that the present !alue of a firm's cash flow is !alued at )1+ million. 3he #rea1
up !alue of the firm if you were to sell the ma5or assets and di!isions separately would "i!e
)2' million. 3his is an e(ample of what 6eter 7ynch would call a8an ___________.
A. stalwart
B. slow "rowth
C. star
$. asset play

12-1
+. ince 1%%%2 the purchasin" power of the U.. dollar has increased relati!e to the purchasin"
power of _______.
A. U9
B. :uro
C. wit;erland
$. Canada

0. If you #elie!e the economy is a#out to "o into a recession you mi"ht chan"e your asset
allocation #y sellin" _______ and #uyin" ______.
A. "rowth stoc1s< lon"-term #onds
B. lon"-term #onds< "rowth stoc1s
C. defensi!e stoc1s< "rowth stoc1s
$. defensi!e stoc1s< lon"-term #onds

,. 3he yield cur!e spread #etween 1'-year 3-#ond and federal funds rate is a _______
economic indicator.
A. leadin"
B. la""in"
C. coincident
$. mi(ed

&. 3he Conference Board's Consumer Confidence Inde( is released ______.
A. daily
B. wee1ly
C. monthly
$. =uarterly

%. 4ou can earn a#normal returns on your in!estments !ia macro forecastin" ______.
A. if you can forecast the economy at all
B. if you can forecast the economy as well as the a!era"e forecaster
C. if you can forecast the economy #etter than the a!era"e forecaster
$. only if you can forecast the economy with perfect accuracy

12-2
1'. >hich of the followin" industries would most analysts classify as mature?
A. Internet ser!ice pro!iders
B. Biotechnolo"y
C. >ireless communication
$. Auto manufacturin"

11. >hich one of the followin" stoc1s represents industries with #elow-a!era"e sensiti!ity to
the state of the economy?
A. @inancials
B. 3echnolo"y
C. @ood and #e!era"e
$. Cyclicals

12. 3he most widely used monetary policy tool is _________.
A. alterin" the discount rate
B. alterin" reser!e re=uirements
C. open mar1et operations
$. increasin" the #ud"et deficit

1.. >hich one of the followin" is the ratio of actual output from factories to potential output
from factories?
A. Capacity utili;ation
B. 6articipation rate
C. $ura#le "oods orders
$. Industrial production

1*. Accordin" to __________ economists2 the "rowth of the U.. economy in the 1%&'s can
#e attri#uted to lower mar"inal ta( rates which impro!ed the incenti!es for people to wor1.
A. 9eynesian
B. monetarist
C. supply-side
$. demand-side

12-.
1+. 3he mar1et !alue of all "oods and ser!ices produced durin" a "i!en time period is called
______.
A. A$6
B. industrial production
C. capacity utili;ation
$. factory orders

10. A #i" increase in "o!ernment spendin" is an e(ample of _________.
A. a positi!e demand shoc1
B. a positi!e supply shoc1
C. a ne"ati!e demand shoc1
$. a ne"ati!e supply shoc1

1,. A$6 refers to _________.
A. the amount of personal disposa#le income in the economy
B. the difference #etween "o!ernment spendin" and "o!ernment re!enues
C. the total manufacturin" output in the economy
$. the total production of "oods and ser!ices in the economy

1&. 6ortfolio mana"er 6eter 7ynch would classify Coca-Cola as _________.
A. an asset play
B. a slow "rower
C. a stalwart
$. a turnaround

1%. Attemptin" to forecast future earnin"s and di!idends is consistent with which of the
followin" approaches to securities analysis?
A. 3echnical analysis
B. @undamental analysis
C. Both technical analysis and fundamental analysis
$. Inde(in"

12-*
2'. 3he analysis of the determinants of firm !alue is called _____________.
A. fundamental analysis
B. technical analysis
C. momentum analysis
$. inde(in"

21. >hich of the followin" companies will #e the #est e(ample of a turnaround? 6ortfolio
mana"er 6eter 7ynch would classify Coca-Cola as _________.
A. Coca Cola
B. Microsoft
C. :((on-Mo#il
$. 9mart

22. Inflation is caused #y ________________.
A. unions
B. rapid "rowth of money supply
C. e(cess supply
$. low rates of capacity utili;ation

2.. :!erythin" else e=ual2 if you e(pect a lar"er interest rate increase than other mar1et
participants2 you should _________.
A. #uy lon"-term #onds
B. #uy short-term #onds
C. #uy common stoc1s
$. #uy preferred stoc1s

2*. 3o o#tain an appro(imate estimate of the real interest rate2 one must _________ the
__________ the nominal ris1-free rate.
A. add< default premium to the
B. su#tract< default premium from the
C. add< e(pected inflation to
$. su#tract< e(pected inflation from

12-+
2+. >hich of the followin" would not #e considered a supply shoc1?
A. A chan"e in the price of imported oil
B. @rost dama"e to the oran"e crop
C. A chan"e in the le!el of education of the a!era"e wor1er
$. An increase in the le!el of "o!ernment spendin"

20. If economic conditions are such that !ery slow "rowth is e(pected in the foreseea#le
future2 one would want to in!est in industries with __________ sensiti!ity to economic
conditions.
A. #elow a!era"e
B. a!era"e
C. a#o!e a!era"e
$. since "rowth is e(pected to #e slow2 sensiti!ity to economic conditions is not an issue

2,. >hich of the followin" is not an e(ample of fiscal policy?
A. ocial ecurity spendin"
B. Medicare spendin"
C. @ed purchases of 3reasury securities
$. Chan"es in the ta( rate

2&. upply side economics tends to focus on _______________.
A. "o!ernment spendin"
B. price controls
C. monetary policy
$. increasin" producti!e capacity

2%. >hich one of the followin" descri#es the amount #y which "o!ernment spendin" e(ceeds
"o!ernment re!enues?
A. Balance of trade
B. Bud"et deficit
C. Aross domestic product
$. Butput "ap

12-0
.'. >hich one of the followin" is pro#a#ly the most direct and immediate way to stimulate or
slow the economy althou"h it is not !ery useful for fine tunin" economic performance?
A. @iscal policy
B. Monetary policy
C. upply-side policy
$. Cisin" minimum wa"es

.1. In macroeconomic terms an increase in the price of imported oil or a decrease in the
a!aila#ility of oil is an e(ample of a _________.
A. demand shoc1
B. supply shoc1
C. monetary shoc1
$. refinery shoc1

.2. ______________ in interest rates are associated with stoc1 mar1et declines.
A. Anticipated increases
B. Unanticipated increases
C. Anticipated decreases
$. Unanticipated decreases

... 3he a!era"e duration of unemployment is _________.
A. a leadin" economic indicator
B. a coincidental economic indicator
C. a la""in" economic indicator
$. #oth coincidental and la""in"

.*. 3he ratio of the purchasin" power of two economies is termed the _______.
A. #alance of trade
B. real e(chan"e rate
C. real interest rate
$. nominal e(chan"e rate

12-,
.+. :!erythin" else e=ual2 an increase in the "o!ernment #ud"et deficit would ______.
I. increase the "o!ernment's demand for funds
II. shift the demand cur!e 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
$. I2 II and III

.0. >hich of the followin" affects a firm's sensiti!ity of its earnin"s to the #usiness cycle?
I. @inancial le!era"e
II. Bperatin" le!era"e
III. 3ype of product
A. II only
B. I and II only
C. I and III only
$. I2 II and III

.,. >hich of the followin" descri#es the rate at which your a#ility to purchase "rows while
you hold an interest-earnin" in!estment?
A. 3he nominal e(chan"e rate
B. 3he nominal interest rate
C. 3he real e(chan"e rate
$. 3he real interest rate

.&. An e(ample of a hi"hly cyclical industry is _________.
A. the automo#ile industry
B. the to#acco industry
C. the pharmaceutical industry
$. the utility industry

12-&
.%. 3he stoc1 price inde( and contracts and orders for non defense capital "oods are
_________.
A. leadin" economic indicators
B. coincidental economic indicators
C. la""in" economic indicators
$. leadin" and coincidental indicators respecti!ely

*'. >hich one of the followin" is not a demand shoc1?
A. Increase in "o!ernment spendin"
B. Increases in the money supply
C. Ceductions in consumer spendin"
$. Impro!ements in education of U.. wor1ers

*1. >hich one of the followin" is not a U.. supply shoc1?
A. Unions force an increase in national wa"e rates
B. .'/ drop in oil supply from the Middle :ast
C. :(tended drou"hts reduce U.. food production 2+/
$. Increases in Chinese purchases of U.. e(ports

*2. 6harmaceuticals2 food2 and other necessities would #e "ood performers durin" the ____
sta"e of the #usiness cycle.
A. pea1
B. contraction
C. trou"h
$. e(pansion

*.. Capital "oods industries such as industrial e=uipment2 transportation or construction
would #e "ood in!estments durin" the _____ sta"e of the #usiness cycle.
A. pea1
B. contraction
C. trou"h
$. e(pansion

12-%
**. If you are "oin" to earn a#normal returns #ased on your macroeconomic analysis it will
most li1ely ha!e to #e #ecause __________.
A. you ha!e more information than others
B. you are a #etter analyst than others
C. you ha!e the same information as others
$. you are an e=ually "ood analyst as others

*+. If the economy is "oin" into a recession2 a "ood industry to in!est in would #e the
__________ industry.
A. automo#ile
B. #an1in"
C. construction
$. medical ser!ices

*0. 3he Board of Ao!ernors of the @ederal Ceser!e ystem are appointed #y ____________
to ser!e _____________ terms.
A. the enate< 1' year
B. the Douse of Cepresentati!es< & year
C. the 6resident< 1* year
$. the ecretary of the 3reasury< 0 year

*,. A firm in the early sta"es of its industry life cycle will li1ely ha!e _________.
A. low di!idend payout rates
B. low rates of in!estment
C. low rates of return on in!estment
$. low CE$ spendin"

*&. >hich of the followin" descri#es the ratio of the num#er of people classified as out of
wor1 to the total la#or force?
A. 3he capacity utili;ation rate
B. 3he participation rate
C. 3he unemployment rate
$. 3he natural rate

12-1'
*%. >hich of the followin" is the rate at which the "eneral le!el of prices for "oods and
ser!ices is risin"?
A. 3he e(chan"e rate
B. 3he "ross domestic product "rowth rate
C. 3he inflation rate

+'. An analyst starts #y e(aminin" the #road economic en!ironment and then considers the
implications of the economy on the industry in which the firm operates. @inally2 the firm's
position within the industry is e(amined. 3his is called __________ analysis.
A. #ottom-up
B. outside-inside
C. top-down
$. upside-down

+1. Assume that the @ederal Ceser!e increases the money supply. 3his will cause
____________.
I. interest rates to decrease
II. consumption and in!estment to decrease
III. inflation to fall
A. I only
B. I and II only
C. II and III only
$. I2 II and III

+2. 3he discount rate is the ________.
A. interest rate #an1s char"e each other for o!erni"ht loans of deposits on reser!e at the @ed
B. interest rate the @ed char"es commercial #an1s on short term loans
C. interest rate that the U.. 3reasury pays on its #ills
$. interest rate that #an1s char"e their #est corporate customers

12-11
+.. If the currency of your country is depreciatin"2 this should __________ e(ports and
__________ imports.
A. stimulate< stimulate
B. stimulate< discoura"e
C. discoura"e< stimulate
$. discoura"e< discoura"e

+*. If interest rates increase2 #usiness in!estment e(penditures are li1ely to __________ and
consumer dura#le e(penditures are li1ely to _________.
A. increase< increase
B. increase< decrease
C. decrease< increase
$. decrease< decrease

++. Increases in the money supply will cause demand for in!estment and consumption "oods
to __________ in the short run and may cause prices to __________ in the lon" run.

+0. 3he nominal interest rate is 0/. 3he inflation rate is ./. 3he e(act real interest rate must
#e _________.
A. 2.%1/
B. ..&+/
C. 1.*+/
$. 2.12/

+,. 3he nominal interest rate is 1'/. 3he real interest rate is */. 3he inflation rate must #e
_________.
A. -0.''/
B. *.''/
C. +.,,/
$. 1*.*'/

12-12
+&. Brder the followin" sta"es in the industry life cycle from earliest to latest that occur after
the start up phase ________.
I. maturity
II. relati!e decline
III. consolidation
A. III2 I2 II
B. I2 III2 II
C. III2 II2 I
$. I2 II2 III

+%. An in!estment strate"y which entails shiftin" the portfolio into industry sectors that are
forecast to outperform others #ased on macroeconomic forecasts is termed ______________.
A. sector rotation
B. contraction8e(pansion analysis
C. life cycle analysis
$. #usiness cycle shiftin"

0'. @irm A produces "ad"ets. 3he price of "ad"ets is )2 each. @irm A has total fi(ed costs of
)12'''2''' and !aria#le costs of )1.'' per "ad"et. 3he corporate ta( rate is *'/. If the
economy is stron"2 the firm will sell 22'''2''' "ad"ets. If the economy enters a recession it
will sell only half as many "ad"ets. If the economy enters a recession2 the after-ta( profit of
@irm A will #e _________.
A. )'
B. )%'2'''
C. )1&'2'''
$. )2,'2'''

01. @irm B produce "ad"ets. 3he price of "ad"ets is )2 each. @irm B has total fi(ed costs of
).''2''' and !aria#le costs of )1.*' per "ad"et. 3he corporate ta( rate is .'/. If the
will sell only half as many "ad"ets. If the economy is stron"2 the after-ta( profit of @irm B
will #e _________.
A. )%'2'''
B. )21'2'''
C. ).''2'''
$. )0.'2'''

12-1.
02. 3he @ed funds rate is the __________.
A. interest rate that #an1s char"e their #est corporate customers
B. interest rate #an1s char"e each other for o!erni"ht loans of deposits on reser!e at the @ed
C. interest rate the @ed char"es commercial #an1s on short term loans
$. interest rate that the U.. 3reasury pays on its #ills

0.. @irm B produce "ad"ets. 3he price of "ad"ets is )2 each. @irm B has total fi(ed costs of
).''2''' and !aria#le costs of )1.*' per "ad"et. 3he corporate ta( rate is *'/. >hat is the
#rea1e!en num#er of "ad"ets B must sell to ma1e a ;ero after ta( profit?
A. .''2'''
B. *''2'''
C. +''2'''
$. 0''2'''

0*. 3he "oal of supply side policies is to _______.
A. increase "o!ernment in!ol!ement in the economy
B. create an en!ironment where wor1ers and owners of capital ha!e the ma(imum incenti!e
and a#ility to produce and de!elop "oods
C. ma(imi;e ta( re!enues of the "o!ernment
$. focus more on wealth redistri#ution policies

12-1*

An industry analysis for manufacturers of a small personal care "ad"et o#ser!ed the followin"
characteristicsF
1. Industry sales ha!e "rown at 1+-2'/ per year in recent years are e(pected to "row at 1'-
1+/ per year o!er the ne(t three years2 still well a#o!e the economic "rowth rate.
2. ome U.. manufacturers are attemptin" to enter fast "rowin" non-U.. mar1ets2 which
remain lar"ely une(ploited.
.. ome manufacturers ha!e created a new niche in the industry #y sellin" directly to
customers throu"h mail order. ales for this industry se"ment are "rowin" at *'/ per year.
*. 3he current penetration rate in the U.. is 0'/ of households and will #e difficult to
increase.
+. Manufacturers compete fiercely on the #asis of price2 and price wars within the industry are
common.
0. ome manufacturers are a#le to de!elop new2 une(ploited niche mar1ets in the U.. #ased
on company reputation2 =uality2 and ser!ice.
,. e!eral manufacturers ha!e recently mer"ed2 and it is e(pected that consolidation in the
industry will increase.
&. Gew manufacturers continue to enter the mar1et.

0+. Characteristics * and + would indicate that the industry is in the _________ sta"e.
A. start-up
B. consolidation
C. maturity
$. relati!e decline

00. Characteristics _______ would #e typical of an industry that is in the start-up sta"e.
A. * and ,
B. 1 and *
C. 2 and +
$. none of the characteristics listed match the start-up sta"e

0,. Characteristics ____ would #e typical of an industry that is in the consolidation sta"e.
A. 0 and ,
B. 1 and *
C. + and 0
$. 2 and &

12-1+
0&. >hich of the characteristics would #e typical of an industry that is in the maturity sta"e?
A. 12 2 and .
B. * and +
C. 02 , and &
$. all characteristics fit the maturity sta"e

0%. Counter-cyclical fiscal policy is #est descri#ed #y which of the followin" statements?
A. Ao!ernment surpluses are planned durin" economic #ooms2 and deficits are planned
durin" economic recessions.
B. 3he annual #ud"et should always #e #alanced.
C. $eficits should always e=ual surpluses.
$. Ao!ernment deficits are planned durin" economic #ooms2 and surpluses are planned

,'. A supply side economist would li1ely a"ree with which of the followin" statements?
A. Ceal output and a""re"ate employment are primarily determined #y a""re"ate demand.
B. Ceal income will rise when "o!ernment e(penditures and ta( rates increase.
C. Ceal output and a""re"ate employment are primarily determined #y ta( rates.
$. Increasin" the money supply will increase real output without causin" hi"her inflation.

,1. >hich of the followin" actions should the central #an1 ta1e if monetary authorities want
to reduce the supply of money to slow the rate of inflation?
A. ell "o!ernment #onds2 reducin" money supply2 increasin" interest rates and slowin"
a""re"ate demand.
B. Buy "o!ernment #onds2 reducin" money supply2 increasin" interest rates and slowin"
a""re"ate demand.
C. $ecrease the discount rate2 lowerin" interest rates2 causin" #oth costs and prices to fall.
$. Increase ta(es2 reducin" costs2 causin" prices to fall.

12-10
,2. 3he decline in the !alue of the dollar relati!e to the yen will ha!e what impact on the
purchase of U.. "oods in -apan?
A. U.. "oods will increase in cost and -apan will import more.
B. U.. "oods will increase in cost and -apan will import less.
C. U.. "oods will decrease in cost and -apan will import more.
$. U.. "oods will increase in cost and -apan will e(port less.

,.. >hich of the followin" are e(amples of cyclical industries?
I. Mayta"
II. Computer chip manufacturers
III. 9ello""'s @rosted @la1es
IH. 6fi;er
A. I and II only
B. I2 II and III only
C. II2 III and IH only
$. I2 II2 III and IH

,*. 4ou would e(pect the #eta of cyclical industries to #e ______ and the #eta of defensi!e
industries to #e ______.
A. "reater than 1< less than 1
B. less than 1< less than 1
C. less than 1< "reater than 1
$. "reater than 1< "reater than 1

,+. >hat economic !aria#le is most closely associated with increasin" corporate profits?
A. :(chan"e rates
B. Inflation
$. Bud"et deficits

12-1,
,0. 3he federal "o!ernment decides to pay for the transition to pri!ate social security accounts
with a one time )1 trillion #ond issue. >hat will #e the #i""est concern to #usinesses relati!e
to the Icrowdin" outI effect?
A. Di"her interest rates due to the new "o!ernment #orrowin"
B. Inflation resultin" from more "o!ernment purchases
C. A ne"ati!e supply shoc1
$. horta"e of in!estment due to new accounts

,,. An e(pandin" economy re=uires more wor1ers. If the supply of wor1ers #ecomes
inade=uate to meet the demand2 what is the li1ely impact on the economy?
A. An economic slowdown is li1ely
B. :mployment trends will re!erse and unemployment will occur
C. Ao!ernment deficits will result from capacity utili;ation
$. Inflation may result from upward wa"e pressures

,&. An e(pandin" economy puts stress on the manufacturin" a#ility of a company. >hen a
firm turns #usiness down durin" periods of economic e(pansion a pro#lem e(ist in the area of
____________.
A. asset allocation
B. capacity utili;ation
C. employment mana"ement
$. strate"ic plannin"

,%. 3he e(pansion of the money supply at a rate that e(ceeds the increase in "oods and
ser!ices will li1ely result in ___________.
A. e(pandin" economy
B. increased inflation
C. interest rate declines
$. lower A$6

12-1&
&'. 3he supply of funds in the economy is controlled primarily #y ____________.
A. the @ederal Ceser!e ystem
B. the Con"ress
C. money center #an1s
$. the 3reasury department

&1. 3he classification system used to classify firms into industries is now called the _____
code.
A. IC
B. GAIC
C. IB +,
$. IM

&2. $urin" 2''* China increased its use of "lo#al oil #y *'/. 3his followed a 1''/ increase
durin" the pre!ious + years. Dow do economists refer to this 1ind of economic e!ent?
A. $emand shoc1
B. :=uili#rium e!ent
C. :(pandin" commodity e!ent
$. upply shoc1

&.. >hene!er B6:C attempts to influence the price of oil #y si"nificantly alterin" production2
economists refer to this type of e!ent as a ______________.
A. demand shoc1
B. e=uili#rium e!ent
C. e(pandin" commodity e!ent
$. supply shoc1

&*. Items that are ____________ and product purchases where ________ is not important
tend to #e less cyclical in nature.
A. necessities< income
B. lu(uries< le!era"e
C. discretionary "oods< time of purchase
$. produced with hi"h fi(ed costs< entertainment

12-1%
&+. Cash cows are typically found in the _________ sta"e of the industry life cycle.
A. startup
B. consolidation
C. maturity
$. relati!e decline

&0. At what point in an industry life cycle are inefficiencies in competitors most li1ely to #e
remo!ed?
A. tart up sta"e
B. Consolidation sta"e
C. Maturity sta"e
$. Celati!e decline sta"e

&,. talwarts are typically found in the _________ sta"e of the industry life cycle.
A. startup
B. consolidation
C. maturity
$. relati!e decline

&&. 7ar"e "rowth companies "enerally emer"e in the __________ sta"e.
A. start up
B. consolidation
C. maturity
$. relati!e decline

&%. >hich of the followin" comprise #arriers to entry?
I. 7ar"e economies of scale re=uired to #e profita#le
II. :sta#lished #rand loyalty
III. 6atent protection for the firm's product
IH. Capid industry "rowth
A. I and II only
$. III and IH only

12-2'
Chapter 12 Macroeconomic and Industry Analysis Answer 9ey

Multiple Choice Questions

1. A top-down analysis of a firm's prospects starts with an analysis of the ____.
A. firm's position in its industry
B. U.. economy or e!en the "lo#al economy
C. industry
$. specific firm under consideration

Difficulty: Easy

2. In 1%&' the dollar to yen e(chan"e rate was a#out )'.''*+. In 2'', the yen to dollar
e(chan"e rate was a#out 121 yen per dollar. A -apanese producer would ha!e had to increase
the dollar price of a "ood sold in the U.. #y _____ to maintain the same yen price in 2'',.
A. &..,/
B. ,%.+/
C. 0+.*/
$. +%../
e
'
J '.''*+ e1 J 18121 J '.''&20
/ e J

Difficulty: Medium

12-21
.. An increase in the !alue of the yen a"ainst the U.. dollar can cause the -apanese
automa1er2 3oyota2 to either _____________ on its U.. sales.
A. lose mar1et share or reduce its profit mar"in
B. "ain mar1et share or reduce its profit mar"in
C. lose mar1et share or increase its profit mar"in
$. "ain mar1et share or increase its profit mar"in

Difficulty: Medium

*. 4ou estimate that the present !alue of a firm's cash flow is !alued at )1+ million. 3he #rea1
up !alue of the firm if you were to sell the ma5or assets and di!isions separately would "i!e
)2' million. 3his is an e(ample of what 6eter 7ynch would call a8an ___________.
A. stalwart
B. slow "rowth
C. star
D. asset play

Difficulty: Medium

+. ince 1%%%2 the purchasin" power of the U.. dollar has increased relati!e to the purchasin"
power of _______.
A. U9
B. :uro
C. wit;erland
$. Canada

Difficulty: Medium

0. If you #elie!e the economy is a#out to "o into a recession you mi"ht chan"e your asset
allocation #y sellin" _______ and #uyin" ______.
A. "rowth stoc1s< lon"-term #onds
B. lon"-term #onds< "rowth stoc1s
C. defensi!e stoc1s< "rowth stoc1s
$. defensi!e stoc1s< lon"-term #onds

Difficulty: Medium

12-22
,. 3he yield cur!e spread #etween 1'-year 3-#ond and federal funds rate is a _______
economic indicator.
A. leadin"
B. la""in"
C. coincident
$. mi(ed

Difficulty: Easy

&. 3he Conference Board's Consumer Confidence Inde( is released ______.
A. daily
B. wee1ly
C. monthly
$. =uarterly

Difficulty: Medium

%. 4ou can earn a#normal returns on your in!estments !ia macro forecastin" ______.
A. if you can forecast the economy at all
B. if you can forecast the economy as well as the a!era"e forecaster
C. if you can forecast the economy #etter than the a!era"e forecaster
$. only if you can forecast the economy with perfect accuracy

Difficulty: Medium

1'. >hich of the followin" industries would most analysts classify as mature?
A. Internet ser!ice pro!iders
B. Biotechnolo"y
C. >ireless communication
D. Auto manufacturin"

Difficulty: Medium

12-2.
11. >hich one of the followin" stoc1s represents industries with #elow-a!era"e sensiti!ity to
the state of the economy?
A. @inancials
B. 3echnolo"y
C. @ood and #e!era"e
$. Cyclicals

Difficulty: Easy

12. 3he most widely used monetary policy tool is _________.
A. alterin" the discount rate
B. alterin" reser!e re=uirements
C. open mar1et operations
$. increasin" the #ud"et deficit

Difficulty: Easy

1.. >hich one of the followin" is the ratio of actual output from factories to potential output
from factories?
A. Capacity utili;ation
B. 6articipation rate
C. $ura#le "oods orders
$. Industrial production

Difficulty: Easy

1*. Accordin" to __________ economists2 the "rowth of the U.. economy in the 1%&'s can
#e attri#uted to lower mar"inal ta( rates which impro!ed the incenti!es for people to wor1.
A. 9eynesian
B. monetarist
C. supply-side
$. demand-side

Difficulty: Easy

12-2*
1+. 3he mar1et !alue of all "oods and ser!ices produced durin" a "i!en time period is called
______.
A. A$6
B. industrial production
C. capacity utili;ation
$. factory orders

Difficulty: Easy

10. A #i" increase in "o!ernment spendin" is an e(ample of _________.
A. a positi!e demand shoc1
B. a positi!e supply shoc1
C. a ne"ati!e demand shoc1
$. a ne"ati!e supply shoc1

Difficulty: Medium

1,. A$6 refers to _________.
A. the amount of personal disposa#le income in the economy
B. the difference #etween "o!ernment spendin" and "o!ernment re!enues
C. the total manufacturin" output in the economy
D. the total production of "oods and ser!ices in the economy

Difficulty: Easy

1&. 6ortfolio mana"er 6eter 7ynch would classify Coca-Cola as _________.
A. an asset play
B. a slow "rower
C. a stalwart
$. a turnaround

Difficulty: Medium

12-2+
1%. Attemptin" to forecast future earnin"s and di!idends is consistent with which of the
followin" approaches to securities analysis?
A. 3echnical analysis
B. @undamental analysis
C. Both technical analysis and fundamental analysis
$. Inde(in"

Difficulty: Easy

2'. 3he analysis of the determinants of firm !alue is called _____________.
A. fundamental analysis
B. technical analysis
C. momentum analysis
$. inde(in"

Difficulty: Easy

21. >hich of the followin" companies will #e the #est e(ample of a turnaround? 6ortfolio
mana"er 6eter 7ynch would classify Coca-Cola as _________.
A. Coca Cola
B. Microsoft
C. :((on-Mo#il
D. 9mart

Difficulty: Medium

22. Inflation is caused #y ________________.
A. unions
B. rapid "rowth of money supply
C. e(cess supply
$. low rates of capacity utili;ation

Difficulty: Easy

12-20
2.. :!erythin" else e=ual2 if you e(pect a lar"er interest rate increase than other mar1et
participants2 you should _________.
A. #uy lon"-term #onds
B. #uy short-term #onds
C. #uy common stoc1s
$. #uy preferred stoc1s

Difficulty: Easy

2*. 3o o#tain an appro(imate estimate of the real interest rate2 one must _________ the
__________ the nominal ris1-free rate.
A. add< default premium to the
B. su#tract< default premium from the
C. add< e(pected inflation to
D. su#tract< e(pected inflation from

Difficulty: Easy

2+. >hich of the followin" would not #e considered a supply shoc1?
A. A chan"e in the price of imported oil
B. @rost dama"e to the oran"e crop
C. A chan"e in the le!el of education of the a!era"e wor1er
D. An increase in the le!el of "o!ernment spendin"

Difficulty: Easy

20. If economic conditions are such that !ery slow "rowth is e(pected in the foreseea#le
future2 one would want to in!est in industries with __________ sensiti!ity to economic
conditions.
A. #elow a!era"e
B. a!era"e
C. a#o!e a!era"e
$. since "rowth is e(pected to #e slow2 sensiti!ity to economic conditions is not an issue

Difficulty: Easy

12-2,
2,. >hich of the followin" is not an e(ample of fiscal policy?
A. ocial ecurity spendin"
B. Medicare spendin"
C. @ed purchases of 3reasury securities
$. Chan"es in the ta( rate

Difficulty: Easy

2&. upply side economics tends to focus on _______________.
A. "o!ernment spendin"
B. price controls
C. monetary policy
D. increasin" producti!e capacity

Difficulty: Easy

2%. >hich one of the followin" descri#es the amount #y which "o!ernment spendin" e(ceeds
"o!ernment re!enues?
A. Balance of trade
B. Bud"et deficit
$. Butput "ap

Difficulty: Easy

.'. >hich one of the followin" is pro#a#ly the most direct and immediate way to stimulate or
slow the economy althou"h it is not !ery useful for fine tunin" economic performance?
A. @iscal policy
B. Monetary policy
C. upply-side policy
$. Cisin" minimum wa"es

Difficulty: Easy

12-2&
.1. In macroeconomic terms an increase in the price of imported oil or a decrease in the
a!aila#ility of oil is an e(ample of a _________.
A. demand shoc1
B. supply shoc1
C. monetary shoc1
$. refinery shoc1

Difficulty: Easy

.2. ______________ in interest rates are associated with stoc1 mar1et declines.
A. Anticipated increases
B. Unanticipated increases
C. Anticipated decreases
$. Unanticipated decreases

Difficulty: Easy

... 3he a!era"e duration of unemployment is _________.
A. a leadin" economic indicator
B. a coincidental economic indicator
C. a la""in" economic indicator
$. #oth coincidental and la""in"

Difficulty: Medium

.*. 3he ratio of the purchasin" power of two economies is termed the _______.
A. #alance of trade
B. real e(chan"e rate
C. real interest rate
$. nominal e(chan"e rate

Difficulty: Easy

12-2%
.+. :!erythin" else e=ual2 an increase in the "o!ernment #ud"et deficit would ______.
I. increase the "o!ernment's demand for funds
II. shift the demand cur!e 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
$. I2 II and III

Difficulty: Medium

.0. >hich of the followin" affects a firm's sensiti!ity of its earnin"s to the #usiness cycle?
I. @inancial le!era"e
II. Bperatin" le!era"e
III. 3ype of product
A. II only
B. I and II only
C. I and III only
D. I2 II and III

Difficulty: Medium

.,. >hich of the followin" descri#es the rate at which your a#ility to purchase "rows while
you hold an interest-earnin" in!estment?
A. 3he nominal e(chan"e rate
B. 3he nominal interest rate
C. 3he real e(chan"e rate
D. 3he real interest rate

Difficulty: Easy

12-.'
.&. An e(ample of a hi"hly cyclical industry is _________.
A. the automo#ile industry
B. the to#acco industry
C. the pharmaceutical industry
$. the utility industry

Difficulty: Easy

.%. 3he stoc1 price inde( and contracts and orders for non defense capital "oods are
_________.
A. leadin" economic indicators
B. coincidental economic indicators
C. la""in" economic indicators
$. leadin" and coincidental indicators respecti!ely

Difficulty: Medium

*'. >hich one of the followin" is not a demand shoc1?
A. Increase in "o!ernment spendin"
B. Increases in the money supply
C. Ceductions in consumer spendin"
D. Impro!ements in education of U.. wor1ers

Difficulty: Medium

*1. >hich one of the followin" is not a U.. supply shoc1?
A. Unions force an increase in national wa"e rates
B. .'/ drop in oil supply from the Middle :ast
C. :(tended drou"hts reduce U.. food production 2+/
D. Increases in Chinese purchases of U.. e(ports

Difficulty: Medium

12-.1
*2. 6harmaceuticals2 food2 and other necessities would #e "ood performers durin" the ____
sta"e of the #usiness cycle.
A. pea1
B. contraction
C. trou"h
$. e(pansion

Difficulty: Easy

*.. Capital "oods industries such as industrial e=uipment2 transportation or construction
would #e "ood in!estments durin" the _____ sta"e of the #usiness cycle.
A. pea1
B. contraction
C. trou"h
$. e(pansion

Difficulty: Easy

**. If you are "oin" to earn a#normal returns #ased on your macroeconomic analysis it will
most li1ely ha!e to #e #ecause __________.
A. you ha!e more information than others
B. you are a #etter analyst than others
C. you ha!e the same information as others
$. you are an e=ually "ood analyst as others

Difficulty: Easy

*+. If the economy is "oin" into a recession2 a "ood industry to in!est in would #e the
__________ industry.
A. automo#ile
B. #an1in"
C. construction
D. medical ser!ices

Difficulty: Easy

12-.2
*0. 3he Board of Ao!ernors of the @ederal Ceser!e ystem are appointed #y ____________
to ser!e _____________ terms.
A. the enate< 1' year
B. the Douse of Cepresentati!es< & year
C. the 6resident< 1* year
$. the ecretary of the 3reasury< 0 year

Difficulty: Medium

*,. A firm in the early sta"es of its industry life cycle will li1ely ha!e _________.
A. low di!idend payout rates
B. low rates of in!estment
C. low rates of return on in!estment
$. low CE$ spendin"

Difficulty: Easy

*&. >hich of the followin" descri#es the ratio of the num#er of people classified as out of
wor1 to the total la#or force?
A. 3he capacity utili;ation rate
B. 3he participation rate
C. 3he unemployment rate
$. 3he natural rate

Difficulty: Easy

*%. >hich of the followin" is the rate at which the "eneral le!el of prices for "oods and
ser!ices is risin"?
A. 3he e(chan"e rate
B. 3he "ross domestic product "rowth rate
C. 3he inflation rate

Difficulty: Easy

12-..
+'. An analyst starts #y e(aminin" the #road economic en!ironment and then considers the
implications of the economy on the industry in which the firm operates. @inally2 the firm's
position within the industry is e(amined. 3his is called __________ analysis.
A. #ottom-up
B. outside-inside
C. top-down
$. upside-down

Difficulty: Easy

+1. Assume that the @ederal Ceser!e increases the money supply. 3his will cause
____________.
I. interest rates to decrease
II. consumption and in!estment to decrease
III. inflation to fall
A. I only
B. I and II only
C. II and III only
$. I2 II and III

Difficulty: Medium

+2. 3he discount rate is the ________.
A. interest rate #an1s char"e each other for o!erni"ht loans of deposits on reser!e at the @ed
B. interest rate the @ed char"es commercial #an1s on short term loans
C. interest rate that the U.. 3reasury pays on its #ills
$. interest rate that #an1s char"e their #est corporate customers

Difficulty: Medium

12-.*
+.. If the currency of your country is depreciatin"2 this should __________ e(ports and
__________ imports.
A. stimulate< stimulate
B. stimulate< discoura"e
C. discoura"e< stimulate
$. discoura"e< discoura"e

Difficulty: Medium

+*. If interest rates increase2 #usiness in!estment e(penditures are li1ely to __________ and
consumer dura#le e(penditures are li1ely to _________.
D. decrease< decrease

Difficulty: Medium

++. Increases in the money supply will cause demand for in!estment and consumption "oods
to __________ in the short run and may cause prices to __________ in the lon" run.

Difficulty: Medium

12-.+
+0. 3he nominal interest rate is 0/. 3he inflation rate is ./. 3he e(act real interest rate must
#e _________.
A. 2.%1/
B. ..&+/
C. 1.*+/
$. 2.12/

Difficulty: Medium

+,. 3he nominal interest rate is 1'/. 3he real interest rate is */. 3he inflation rate must #e
_________.
A. -0.''/
B. *.''/
C. +.,,/
$. 1*.*'/
inflation

Difficulty: Medium

+&. Brder the followin" sta"es in the industry life cycle from earliest to latest that occur after
the start up phase ________.
I. maturity
II. relati!e decline
III. consolidation
A. III2 I2 II
B. I2 III2 II
C. III2 II2 I
$. I2 II2 III

Difficulty: Medium

12-.0
+%. An in!estment strate"y which entails shiftin" the portfolio into industry sectors that are
forecast to outperform others #ased on macroeconomic forecasts is termed ______________.
A. sector rotation
B. contraction8e(pansion analysis
C. life cycle analysis
$. #usiness cycle shiftin"

Difficulty: Easy

0'. @irm A produces "ad"ets. 3he price of "ad"ets is )2 each. @irm A has total fi(ed costs of
)12'''2''' and !aria#le costs of )1.'' per "ad"et. 3he corporate ta( rate is *'/. If the
will sell only half as many "ad"ets. If the economy enters a recession2 the after-ta( profit of
@irm A will #e _________.
A. )'
B. )%'2'''
C. )1&'2'''
$. )2,'2'''

Difficulty: Medium

12-.,
01. @irm B produce "ad"ets. 3he price of "ad"ets is )2 each. @irm B has total fi(ed costs of
).''2''' and !aria#le costs of )1.*' per "ad"et. 3he corporate ta( rate is .'/. If the
will sell only half as many "ad"ets. If the economy is stron"2 the after-ta( profit of @irm B
will #e _________.
A. )%'2'''
B. )21'2'''
C. ).''2'''
D. )0.'2'''

Difficulty: Hard

02. 3he @ed funds rate is the __________.
A. interest rate that #an1s char"e their #est corporate customers
B. interest rate #an1s char"e each other for o!erni"ht loans of deposits on reser!e at the @ed
C. interest rate the @ed char"es commercial #an1s on short term loans
$. interest rate that the U.. 3reasury pays on its #ills

Difficulty: Easy

12-.&
0.. @irm B produce "ad"ets. 3he price of "ad"ets is )2 each. @irm B has total fi(ed costs of
).''2''' and !aria#le costs of )1.*' per "ad"et. 3he corporate ta( rate is *'/. >hat is the
#rea1e!en num#er of "ad"ets B must sell to ma1e a ;ero after ta( profit?
A. .''2'''
B. *''2'''
C. +''2'''
$. 0''2'''
Brea1e!en J

Difficulty: Hard

0*. 3he "oal of supply side policies is to _______.
A. increase "o!ernment in!ol!ement in the economy
B. create an en!ironment where wor1ers and owners of capital ha!e the ma(imum incenti!e
and a#ility to produce and de!elop "oods
C. ma(imi;e ta( re!enues of the "o!ernment
$. focus more on wealth redistri#ution policies

Difficulty: Easy

12-.%

An industry analysis for manufacturers of a small personal care "ad"et o#ser!ed the followin"
characteristicsF
1. Industry sales ha!e "rown at 1+-2'/ per year in recent years are e(pected to "row at 1'-
1+/ per year o!er the ne(t three years2 still well a#o!e the economic "rowth rate.
2. ome U.. manufacturers are attemptin" to enter fast "rowin" non-U.. mar1ets2 which
remain lar"ely une(ploited.
.. ome manufacturers ha!e created a new niche in the industry #y sellin" directly to
customers throu"h mail order. ales for this industry se"ment are "rowin" at *'/ per year.
*. 3he current penetration rate in the U.. is 0'/ of households and will #e difficult to
increase.
+. Manufacturers compete fiercely on the #asis of price2 and price wars within the industry are
common.
0. ome manufacturers are a#le to de!elop new2 une(ploited niche mar1ets in the U.. #ased
on company reputation2 =uality2 and ser!ice.
,. e!eral manufacturers ha!e recently mer"ed2 and it is e(pected that consolidation in the
industry will increase.
&. Gew manufacturers continue to enter the mar1et.

0+. Characteristics * and + would indicate that the industry is in the _________ sta"e.
A. start-up
B. consolidation
C. maturity
$. relati!e decline

Difficulty: Easy

00. Characteristics _______ would #e typical of an industry that is in the start-up sta"e.
A. * and ,
B. 1 and *
C. 2 and +
D. none of the characteristics listed match the start-up sta"e

Difficulty: Medium

12-*'
0,. Characteristics ____ would #e typical of an industry that is in the consolidation sta"e.
A. 0 and ,
B. 1 and *
C. + and 0
$. 2 and &

Difficulty: Medium

0&. >hich of the characteristics would #e typical of an industry that is in the maturity sta"e?
A. 12 2 and .
B. * and +
C. 02 , and &
$. all characteristics fit the maturity sta"e

Difficulty: Medium

0%. Counter-cyclical fiscal policy is #est descri#ed #y which of the followin" statements?
A. Ao!ernment surpluses are planned durin" economic #ooms2 and deficits are planned
B. 3he annual #ud"et should always #e #alanced.
C. $eficits should always e=ual surpluses.
$. Ao!ernment deficits are planned durin" economic #ooms2 and surpluses are planned

Difficulty: Medium

,'. A supply side economist would li1ely a"ree with which of the followin" statements?
A. Ceal output and a""re"ate employment are primarily determined #y a""re"ate demand.
B. Ceal income will rise when "o!ernment e(penditures and ta( rates increase.
C. Ceal output and a""re"ate employment are primarily determined #y ta( rates.
$. Increasin" the money supply will increase real output without causin" hi"her inflation.

Difficulty: Medium

12-*1
,1. >hich of the followin" actions should the central #an1 ta1e if monetary authorities want
to reduce the supply of money to slow the rate of inflation?
A. ell "o!ernment #onds2 reducin" money supply2 increasin" interest rates and slowin"
a""re"ate demand.
B. Buy "o!ernment #onds2 reducin" money supply2 increasin" interest rates and slowin"
a""re"ate demand.
C. $ecrease the discount rate2 lowerin" interest rates2 causin" #oth costs and prices to fall.
$. Increase ta(es2 reducin" costs2 causin" prices to fall.

Difficulty: Medium

,2. 3he decline in the !alue of the dollar relati!e to the yen will ha!e what impact on the
purchase of U.. "oods in -apan?
A. U.. "oods will increase in cost and -apan will import more.
B. U.. "oods will increase in cost and -apan will import less.
C. U.. "oods will decrease in cost and -apan will import more.
$. U.. "oods will increase in cost and -apan will e(port less.

Difficulty: Medium

,.. >hich of the followin" are e(amples of cyclical industries?
I. Mayta"
II. Computer chip manufacturers
III. 9ello""'s @rosted @la1es
IH. 6fi;er
A. I and II only
$. I2 II2 III and IH

Difficulty: Medium

12-*2
,*. 4ou would e(pect the #eta of cyclical industries to #e ______ and the #eta of defensi!e
industries to #e ______.
A. "reater than 1< less than 1
B. less than 1< less than 1
C. less than 1< "reater than 1
$. "reater than 1< "reater than 1

Difficulty: Easy

,+. >hat economic !aria#le is most closely associated with increasin" corporate profits?
A. :(chan"e rates
B. Inflation
$. Bud"et deficits

Difficulty: Medium

,0. 3he federal "o!ernment decides to pay for the transition to pri!ate social security accounts
with a one time )1 trillion #ond issue. >hat will #e the #i""est concern to #usinesses relati!e
to the Icrowdin" outI effect?
A. Di"her interest rates due to the new "o!ernment #orrowin"
B. Inflation resultin" from more "o!ernment purchases
C. A ne"ati!e supply shoc1
$. horta"e of in!estment due to new accounts

Difficulty: Medium

,,. An e(pandin" economy re=uires more wor1ers. If the supply of wor1ers #ecomes
inade=uate to meet the demand2 what is the li1ely impact on the economy?
A. An economic slowdown is li1ely
B. :mployment trends will re!erse and unemployment will occur
C. Ao!ernment deficits will result from capacity utili;ation
D. Inflation may result from upward wa"e pressures

Difficulty: Medium

12-*.
,&. An e(pandin" economy puts stress on the manufacturin" a#ility of a company. >hen a
firm turns #usiness down durin" periods of economic e(pansion a pro#lem e(ist in the area of
____________.
A. asset allocation
B. capacity utili;ation
C. employment mana"ement
$. strate"ic plannin"

Difficulty: Medium

,%. 3he e(pansion of the money supply at a rate that e(ceeds the increase in "oods and
ser!ices will li1ely result in ___________.
A. e(pandin" economy
B. increased inflation
C. interest rate declines
$. lower A$6

Difficulty: Medium

&'. 3he supply of funds in the economy is controlled primarily #y ____________.
A. the @ederal Ceser!e ystem
B. the Con"ress
C. money center #an1s
$. the 3reasury department

Difficulty: Easy

&1. 3he classification system used to classify firms into industries is now called the _____
code.
A. IC
B. GAIC
C. IB +,
$. IM

Difficulty: Easy

12-**
&2. $urin" 2''* China increased its use of "lo#al oil #y *'/. 3his followed a 1''/ increase
durin" the pre!ious + years. Dow do economists refer to this 1ind of economic e!ent?
A. $emand shoc1
B. :=uili#rium e!ent
C. :(pandin" commodity e!ent
$. upply shoc1

Difficulty: Medium

&.. >hene!er B6:C attempts to influence the price of oil #y si"nificantly alterin" production2
economists refer to this type of e!ent as a ______________.
A. demand shoc1
B. e=uili#rium e!ent
C. e(pandin" commodity e!ent
D. supply shoc1

Difficulty: Medium

&*. Items that are ____________ and product purchases where ________ is not important
tend to #e less cyclical in nature.
A. necessities< income
B. lu(uries< le!era"e
C. discretionary "oods< time of purchase
$. produced with hi"h fi(ed costs< entertainment

Difficulty: Medium

&+. Cash cows are typically found in the _________ sta"e of the industry life cycle.
A. startup
B. consolidation
C. maturity
$. relati!e decline

Difficulty: Easy

12-*+
&0. At what point in an industry life cycle are inefficiencies in competitors most li1ely to #e
remo!ed?
A. tart up sta"e
B. Consolidation sta"e
C. Maturity sta"e
$. Celati!e decline sta"e

Difficulty: Medium

&,. talwarts are typically found in the _________ sta"e of the industry life cycle.
A. startup
B. consolidation
C. maturity
$. relati!e decline

Difficulty: Easy

&&. 7ar"e "rowth companies "enerally emer"e in the __________ sta"e.
A. start up
B. consolidation
C. maturity
$. relati!e decline

Difficulty: Medium

&%. >hich of the followin" comprise #arriers to entry?
I. 7ar"e economies of scale re=uired to #e profita#le
II. :sta#lished #rand loyalty
III. 6atent protection for the firm's product
IH. Capid industry "rowth
A. I and II only
$. III and IH only

Difficulty: Medium

12-*0

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Chapter 12 - Macroeconomic and Industry Analysis

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