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1 Economics May 2018
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Demand, Supply, and Market Equilibrium c. An increase in the price of the output if demand
1.If both the supply and the demand for a good is unchanged.
increase, the market price will d. Wage increases.
a. Rise only in the case of an inelastic supply 8. Which of the following market features is likely
function. to cause a surplus of a particular product
b. Fall only in the case of an inelastic supply a. A monopoly.
function. b. A price floor.
c. Not be predictable with only these facts. c. A price ceiling.
d. Rise only in the case of an inelastic demand d. A perfect market.
function. 9.A decrease in the price of a complementary
2.A supply curve illustrates the relationship good will
between a. Shift the demand curve of the joint commodity
a. Price and quantity supplied. to the left.
b. Price and consumer tastes. b. Increase the price paid for a substitute good.
c. Price and quantity demanded. c. Shift the supply curve of the joint commodity to
d. Supply and demand. the left.
3. As a business owner you have determined that d. Shift the demand curve of the joint commodity
the demand for your product is inelastic. Based to the right.
upon this assessment you understand that 10.Demand for a product tends to be price
a. Increasing the price of your product will inelastic if
increase total revenue. a. The product is considered a luxury item.
b. Decreasing the price of your product will b. Few good complements for the product are
increase total revenue. available.
c. Increasing the price of your product will have c. The population in the market area is large.
no effect on total revenue. d. People spend a large share of their income on
d. Increasing the price of your product will the product.
increase competition. 11. Which of the following has the highest price
Items 4 and 5are based on the following elasticity coefficient
information: a. Milk.
Assume that demand for a particular product b. Macaroni and cheese.
changed as shown below from D1 to D2. c. Bread.
d. Ski boats.
12.The local video store’s business increased by
12% after the movie theater raised its prices from
$6.50 to $7.00. Thus, relative to movie theater
admissions, videos are
a. Substitute goods.
b. Superior goods.
c. Complementary goods.
d. Public goods.
4. Which of the following could cause the change
13.An individual receives an income of $3,000 per
shown in the graph
month, and spends $2,500. An increase in income
a. A decrease in the price of the product.
of $500 per month occurs, and the individual
b. An increase in supply of the product.
spends $2,800. The individual’s marginal
c. A change in consumer tastes.
propensity to save is
d. A decrease in the price of a substitute for the
a. 0.2
product.
b. 0.4
5. What will be the result on the equilibrium price
c. 0.6
for the product
d. 0.8
a. Increase.
14.In any competitive market, an equal increase
b. Decrease.
in both demand and supply can be expected to
c. Remain the same.
always
d. Cannot be determined.
a. Increase both price and market-clearing
6.Which one of the following has an inverse
quantity.
relationship with demand for money
b. Decrease both price and market-clearing
a. Aggregate income.
quantity.
b. Price levels.
c. Increase market-clearing quantity.
c. Interest rates.
d. Increase price.
d. Flow of funds.
15.Given the following data, what is the marginal
7.An improvement in technology that in turn
Prospensity to consume
leads to improved worker productivity would most
Level of
likely result in
Disposable income Consumption
a. A shift to the right in the supply curve and a
$40,000 $38,000
lowering of the price of the output.
48,000 44,000
b. A shift to the left in the supply curve and a
a. 1.33
lowering of the price of the output.
b. 1.16
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c. 0.95
d. 0.75
16.Which of the following will cause a shift in the
supply curve of the product
a. Changes in the price of the product.
b. Changes in production taxes.
c. Changes in consumer tastes.
d. Changes in the number of buyers in the
market.
17. When the federal government imposes health
and safety regulations on certain products, one of
the most likely results is
a. Greater consumption of the product.
b. Lower prices for the product.
c. Greater tax revenues for the federal
government.
d. Higher prices for the product.
18. In which of the following situations would
there be an inelastic demand
a. A 5% price increase results in 3% decrease in
the quantity demanded.
b. A 4% price increase results in a 6% decrease in
the quantity demanded.
c. A 4% price increase results in a 4% decrease in
the quantity demanded.
d. A 3% price decrease results in a 5% increase in
the quantity demanded.
19.In a competitive market for labor in which
demand is stable, if workers try to increase their
wage
a. Employment must fall.
b. Government must set a maximum wage below
the equilibrium wage.
c. Firms in the industry must become smaller.
d. Product supply must decrease.
20. A polluting manufacturing firm tends, from the
societal viewpoint, to
a. Price its products too low.
b. Produce too little output.
c. Report too little profitability.
d. Employ too little equity financing.
21.If the federal government regulates a product
or service in a competitive market by setting a
maximum price below the equilibrium price what
is the long run effect
a. A surplus.
b. A shortage.
c. A decrease in demand.
d. No effect on the market.
22.A valid reason for the government to intervene
in the wholesale electrical power market would
include which one of the following
a. A price increase that is more than expected.
b. Electricity is an essential resource and the
wholesale market is not competitive.
c. The electricity distribution companies are losing
money.
d. Foreign power generators have contracts with
the local government at very high prices.
23. If the income elasticity of demand coefficient
for a particular product is 3.00, the good is likely
a. A luxury good.
b. A complementary good.
c. An inferior good.
d. A necessity.
24.Long Lake Golf Course has raised greens fees
for a nine-hole game due to an increase in
demand.
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Which one of the following is correct
a. The regular weekday and weekend demand is
inelastic.
b. The regular weekday and weekend demand is
elastic.
c. The senior citizen demand is elastic, and
weekend demand is inelastic.
d. The regular weekday demand is inelastic, and
weekend demand is elastic.
25.Which one of the following would cause the
demand curve for a commodity to shift to the left
a. A rise in the price of a substitute product.
b. A rise in average household income.
c. A rise in the price of a complementary
commodity.
d. A rise in the population.
26.Price ceilings
a. Are illustrated by government price support
programs in agriculture.
b. Create prices greater than equilibrium prices.
c. Create prices below equilibrium prices.
d. Result in persistent surpluses.
27.X and Y are substitute products. If the price of
product Y increases, the immediate impact on
product X is
a. Price will increase.
b. Quantity demanded will increase.
c. Quantity supplied will increase.
d. Price, quantity demanded, and supply will
increase.
28. Wilson Corporation has a major competitor
that produces a product that is a close substitute
for Wilson’s good. If the coefficient of cross-
elasticity of demand for Wilson’s product with
respect to the competitor’s product is 2.00 and
the competitor decreases its price by 5%, what is
the expected effect on the demand for Wilsons
product
a. A 5% increase in demand.
b. A 5% decrease in demand.
c. A 10% increase in demand.
d. A 10% decrease in demand.
29. As the price for a particular product changes,
the quantity of the product demanded changes
according to the following schedule:
Total quantity demanded Price per unit
100 $50
150 45
200 40
225 35
230 30
232 25
Using the arc method, the price elasticity of
demand for this product when the price decreases
from $50 to $45 is
a. 0.20
b. 10.00
c. 0.10
d. 3.80
30.As the price for a particular product changes, c. Increasing the size of a factory will result in
the quantity of the product demanded changes lower average costs.
according to the following schedule: d. Increasing the size of a factory will result in
Total quantity demanded Price per unit lower total costs.
100 $50 38.In the long run, a firm may experience
150 45 increasing returns due to
200 40 a. Law of diminishing returns.
225 35 b. Opportunity costs.
230 30 c. Comparative advantage.
232 25 d. Economies of scale.
Using the arc method, the price elasticity of 39.The measurement of the benefit lost by using
demand for this product when the price decreases resources for a given purpose is
from $40 to $35 is a. Economic efficiency.
a. 0.20 b. Opportunity cost.
b. 0.88 c. Comparative advantage.
c. 10.00 d. Absolute advantage.
d. 5.00 Items 40 and 41are based on the following
31.If a group of consumers decide to boycott a information:
particular product, the expected result would be
a. An increase in the product price to make up
lost revenue.
b. A decrease in the demand for the product.
c. An increase in product supply because of
increased availability.
d. That demand for the product would become
completely inelastic.
32. Which of the following is notlikely to affect the
supply of a particular good
40.The total cost of producing seven units is
a. Changes in government subsidies.
a. $90.02
b. Changes in technology.
b. $168.00
c. Changes in consumer income.
c. $258.02
d. Changes in production costs.
d. $280.00
33.If a product’s demand is elastic and there is a
41.The marginal cost of producing the ninth unit
decrease in price, the effect will be
is
a. A decrease in total revenue.
a. $23.50
b. No change in total revenue.
b. $23.75
c. A decrease in total revenue and the demand
c. $25.75
curve shifts to the left.
d. $33.75
d. An increase in total revenue.
42.Daily costs for Kelso Manufacturing include
34.All of the following are complementary goods
$1,000 of fixed costs and total variable costs are
except
shown below.
a. Margarine and butter.
Unit
b. Cameras and rolls of film.
output 10 11 12 13 14 15
c. VCRs and video cassettes.
Cost $125 $250 $400 $525 $700 $825
d. Razors and razor blades.
The average total cost at an output level of 11
35.The law of diminishing marginal utility states
units is
that
a. $113.64
a. Marginal utility will decline as a consumer
b. $125.00
acquires additional units of a specific product.
c. $215.91
b. Total utility will decline as a consumer acquires
d. $250.00
additional units of a specific product.
Items 43 through 45 are based on the following
c. Declining utilities causes the demand curve to
information:
slope upward.
d. Consumers’ wants will diminish with the
passage of time.
36.In the pharmaceutical industry where a
diabetic must have insulin no matter the cost and
where there is no other substitute, the diabetic’s
demand curve is bestdescribed as
a. Perfectly elastic.
b. Perfectly inelastic. **
c. Elastic. 43. The marginal physical product when one
d. Inelastic. worker is added to a team of 10 workers is
Costs of Production a. 1 unit.
37.Because of the existence of economies of b. 8 units.
scale, business firms may find that c. 5 units.
a. Each additional unit of labor is less efficient d. 25 units.
than the previous unit. 44.The marginal revenue per unit when one
b. As more labor is added to a factory, increases worker is added to a team of 11 workers is
in output will diminish in the short run. a. $105.00
b. $225.00

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c. $35.00
d. $47.50
45.The marginal revenue product when one
worker is added to a team of 11 workers is
a. $42.00
b. $225.00
c. $105.00
d. $47.50
46.Marginal revenue is
a. Equal to price in monopolistic competition.
b. The change in total revenue associated with
increasing prices.
c. Greater than price in pure competition.
d. The change in total revenue associated with
producing and selling one more unit.
47.In microeconomics, the distinguishing
characteristic of the long run on the supply side is
that
a. Only supply factors determine price and output.
b. Only demand factors determine price and
output.
c. Firms are not allowed to enter or exit the
industry.
d. All inputs are variable.
48. What is the main factor that differentiates the
short-run cost function from the long run cost
function
a. Nothing, the two functions are identical.
b. The level of technology.
c. Changes in government subsidies.
d. The nature of the costs.
Items 49 and 50 are based on the following
information:
Karen Parker wants to establish an environmental
testing company that would specialize in
evaluating the quality of water found in rivers and
streams. However, Parker has discovered that she
needs either certification or approval from five
separate local and state agencies before she can
commence business. Also, the necessary
equipment to begin would cost several million
dollars. Nevertheless, Parker believes that if
she is able to obtain capital resources, she can
gain market share from the two major ompetitors.
49.The large capital outlay necessary for the
equipment is an example of a(n)
a. Entry barrier.
b. Minimum efficient scale.
c. Created barrier.
d. Production possibility boundary.
50.The market structure Karen Parker is
attempting to enter isbestdescribed as
a. A natural monopoly.
b. A cartel.
c. An oligopoly.
d. Monopolistic competition.
51.The distinguishing characteristic of oligopolistic
markets is
a. A single seller of a homogeneous product with
no close substitutes.
b. A single seller of a heterogeneous product with
no close substitutes.
c. Lack of entry and exit barriers in the industry.
d. Mutual interdependence of firm pricing and
output decisions.
52.Economic markets that are characterized by
monopolistic competition have all of the following
characteristics except
a. One seller of the product.
b. Economies or diseconomies of scale.
c. Advertising.
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d. Heterogeneous products.
53. Which type of economic market structure is
characterized by a few large sellers of a product
or service, engaging in primarily nonprice
competition
a. Monopoly.
b. Oligopoly.
c. Perfect competition.
d. Monopolistic competition.
54. Which type of economic market structure is
composed of a large number of sellers, each
producing an identical product, and with no
significant barriers to entry and exit
a. Monopoly.
b. Oligopoly.
c. Perfect competition
d. Monopolistic competition.
55.A natural monopoly exists because
a. The firm owns natural resources.
b. The firms holds patents.
c. Economic and technical conditions permit only
one efficient supplier.
d. The government is the only supplier.
56.A market with many independent firms, low
barriers to entry, and product differentiation is
bestclassified as
a. A monopoly.
b. A natural monopoly.
c. Monopolistic competition.
d. An oligopoly.
57.Which of the following is nota key assumption
of perfect competition?
a. Firms sell a homogeneous product.
b. Customers are indifferent about which firm
they buy from.
c. The level of a firm’s output is small relative to
the industry’s total output.
d. Each firm can price its product above the
industry price.
58.An oligopolist faces a “kinked” demand curve.
This terminology indicates that
a. When an oligopolist lowers its price, the other
firms in the oligopoly will match the price
reduction, but if the oligopolist raises its price, the
other firms will ignore the price change.
b. An oligopolist faces a nonlinear demand for its
product, and price changes will have little effect
on demand for that product.
c. An oligopolist can sell its product at any price,
but after the “saturation point” another oligopolist
will lower its price and, therefore, shift the
demand curve to the left.
d. Consumers have no effect on the demand
curve, and an oligopolist can shape the curve to
optimize its own efficiency.
Aggregate Demand and Business Cycles
59. If consumer confidence falls, the impact upon
the economy is
a. A downturn.
b. An upturn.
c. No change.
d. Consumer confidence does not have an impact
upon the economy.
60.If an increase in government purchases of
goods and services of $20 billion causes
equilibrium GDP to rise by $80 billion, and if total
taxes and investment are constant,
the marginal propensity to consume out of
disposable income is
a. 0.75
b. 0.25
c. 1.25
d. 4.00
61.During the recessionary phase of a business
cycle
a. The purchasing power of money is likely to
decline rapidly.
b. The natural rate of unemployment will increase
dramatically.
c. Potential national income will exceed actual
national
income.
d. Actual national income will exceed potential
national
income.
62.For a given level of tax collections, prices, and
interest rates, a decrease in governmental
purchases will result in a(n)
a. Increase in aggregate demand.
b. Increase in aggregate supply.
c. Decrease in aggregate demand.
d. Decrease in aggregate supply.
63.In national income terms, aggregate demand
is the
a. Demand for money by the community in a
period of full employment.
b. Total expenditure on capital goods by
entrepreneurs during a period of full employment.
c. Demand that is needed if a country’s economy
is to operate at optimum level and the level of
investment is to be raised.
d. Total expenditures on consumer goods and
investment, including government and foreign
expenditures, during a given period.
*64.Which one of the following would not be
included in the computation in gross domestic
product (GDP)?
a. Purchase of a new home.
b. An automotive worker’s wages.
c. A doctor’s fee.
d. Purchase of common stock.
65. An upturn in economic activity is indicated by
all of the following, except
a. Increased housing starts.
b. Reduction in the quantity of unemployment
claims.
c. Increase in personal travel.
d. Reduction in the amount of luxury purchases.
66. Which of the following may provide a leading
indicator of a future increase in gross domestic
product
a. A reduction in the money supply.
b. A decrease in the issuance of building permits.
c. An increase in the timeliness of delivery by
vendors.
d. An increase in the average hours worked per
week of production workers.
67.Disposable income is calculated as
a. Gross domestic product minus the capital cost
allowance.
b. Net domestic product minus indirect business
taxes plus net income earned abroad.
c. Personal income minus transfer payments.
d. Personal income minus personal taxes.
68.The primary reason for allowing legal
immigration into industrial nations is the
immigrants’ potential for
a. Reducing a trade deficit.
b. Fulfilling a trade agreement.
c. Contributing to economic growth.
d. Fulfilling a political agreement.
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69.Some economic indicators lead the economy
into a recovery or recession, and some lag it. An
example of a lagging indicator is
a. Chronic unemployment.
b. Orders for consumer and producer goods.
c. Housing starts.
d. Consumer expectations.
70.Government borrowing to finance large deficits
increases the demand for lendable funds and
a. Increases the supply of lendable funds.
b. Exerts downward pressure on interest rates.
c. Has no impact on interest rates.
d. Puts upward pressure on interest rates.
Economic Measures and Policy
71.A period of rising inflation
a. Increases the price level, which benefits those
who are entitled to receive specific amounts of
money.
b. Enhances the positive relationship between the
price level and the purchasing power of money.
c. Will not be affected by contracts that include
the indexing of payments.
d. Increases the price level, which is negatively
related to the purchasing power of money.
72.The most effective fiscal policy program to help
reduce demand-pull inflation would be to
a. Decrease the rate of growth of the money
supply.
b. Increase both taxes and government spending.
c. Decrease taxes and increase government
spending.
d. Increase taxes and decrease government
spending.
73. The money supply in a nation’s economy will
decrease following
a. Open-market purchases by the nation’s central
bank.
b. A decrease in the discount rate.
c. An increase in the reserve ratio.
d. A decrease in the margin requirement.
74.The Federal Reserve Board most directly
influences a corporation’s decision of whether or
not to issue debt or equity financing when it
revises the
a. Corporate income tax rate.
b. Prime rate at which the Federal Reserve Bank
lends money to member banks.
c. Discount rate at which the Federal Reserve
Bank lends money to member banks.
d. Discount rate at which member banks lend
money to their customers.
75.According to fiscal policy principles, a tax
increase will
a. Increase spending and increase aggregate
demand.
b. Increase spending and reduce aggregate
demand.
c. Reduce spending and increase aggregate
demand.
d. Reduce spending and reduce aggregate
demand.
76.If the Federal Reserve Board wanted to
implement an expansionary monetary policy,
which one of the following
a. Raise the reserve requirement and the discount
rate.
b. Purchase additional US government securities
and lower the discount rate.
c. Reduce the reserve requirement and raise the
discount rate.
d. Raise the discount rate and sell US government
securities.
77.The Federal Reserve System’s reserve ratio is
a. The specified percentage of a commercial
bank’s deposit liabilities that must be deposited in
the central bank.
b. The rate that the central bank charges for loans
granted to commercial banks.
c. The ratio of excess reserves to legal reserves
that are
deposited in the central bank.
d. The specified percentage of a commercial
bank’s demand deposits to total liabilities.
78.Which of the following instruments of
monetary policy is the most important means by
which the money supply is controlled
a. Changing the reserve ratio.
b. Open-market operations.
c. Manipulation of government spending.
d. Changing the discount rate.
79. If a government were to use only fiscal policy
to stimulate the economy from a recession, it
would
a. Raise consumer taxes and increase government
spending.
b. Lower business taxes and government
spending.
c. Increase the money supply and increase
government spending.
d. Lower consumer taxes and increase
government spending.
80.The federal budget deficit is the
a. Total accumulation of the federal government’s
surpluses and deficits.
b. Excess state, local, and federal spending over
their revenues.
c. Amount by which the federal government’s
expenditures exceed its revenues in a given year.
d. Amount by which liabilities exceed assets on
the federal government’s balance sheet.
*81.Which of the following is a tool of monetary
policy that a nation’s central bank could use to
stabilize the economy during an inflationary
period
a. Selling government securities.
b. Lowering bank reserve requirements.
c. Lowering bank discount rates.
d. Encouraging higher tax rates.
82.Economists and economic policy makers are
interested in the multiplier effect because the
multiplier explains why
a. A small change in investment can have a much
larger impact on gross domestic product.
b. Consumption is always a multiple of savings.
c. The money supply increases when deposits in
the banking system increase.
d. The velocity of money is less than one.
83. Assume that the United States Congress
passes a tax law that provides for a “rebate” to
taxpayers. One of the goals of the rebate is
a. Increase consumer disposable income and
expand the economy.
b. Increase consumer disposable income and
contract the economy.
c. Decrease consumer disposable income and
expand the economy
d. Decrease consumer disposable income and
contract the economy.
84. The rate of unemployment caused by changes
in the composition of unemployment opportunities
over time is referred to as the
a. Frictional unemployment rate.
6
b. Cyclical unemployment rate.
c. Structural unemployment rate.
d. Full-employment unemployment rate.
85. The producer price index measures
a. The price of a basket of commodities at the
point of the first commercial sale.
b. Price changes for all products sold by domestic
producers to foreigners.
c. Price changes of goods purchased from other
countries.
d. The price of a fixed market basket of goods and
services purchased by a typical urban consumer.
86. The formula for calculating a price index for
the year 2013, using the year 2008 as a reference
period is
87.The discount rate set by the Federal Reserve
System is the
a. Required percentage of reserves deposited at
the central bank.
b. Rate that commercial banks charge for loans to
each other.
c. Rate that commercial banks charge for loans to
the general public.
d. Rate that the central bank charges for loans to
commercial banks.
88. Which of the following is true about deflation
a. It motivates consumers to borrow money.
b. It motivates businesses to make investments.
c. It results in very low interest rates.
d. It results in economic expansion.
89. Economies often experience inflation but
seldom experience long periods of deflation.
Which of the following is true about a deflationary
economy?
a. Companies are hesitant to make investments.
b. The lower prices encourage consumers to make
major purchases.
c. Interest rates tend to be high.
d. Actual GDP is above potential GDP.
90. What factor explains the difference between
real and nominal interest rates?
a. Inflation risk.
b. Credit risk.
c. Default risk.
d. Market risk.
Global Economics
91.All of the following are true about international
trade except that
a. The gains from international trade depend on
specialization with comparative advantage.
b. Absolute advantage without comparative
advantage does not result in gains from
international trade.
c. Absolute advantage is defined as the ability of
one nation to produce a product at a relatively
lower opportunity cost than another nation.
d. Where there is reciprocal absolute advantage
between two countries, specialization will make it
possible to produce more of each product.
92.If the central bank of a country raises interest
rates sharply, the country’s currency will most
likely
a. Increase in relative value.
b. Remain unchanged in value.
c. Decrease in relative value.
d. Decrease sharply in value at first and then
return to its initial value.
93.Which one of the following groups would be
the primarybeneficiary of a tariff
a. Domestic producers of export goods.
b. Domestic producers of goods protected by the
tariff.
c. Domestic consumers of goods protected by the
tariff.
d. Foreign producers of goods protected by the
tariff.
94. In the law of comparative advantage, the
country which should produce a specific product is
determined by
a. Opportunity costs.
b. Profit margins.
c. Economic order quantities.
d. Tariffs.
95.Assuming exchange rates are allowed to
fluctuate freely, which one of the following factors
would likely cause a nation’s currency to
appreciate on the foreign exchange market?
a. A relatively rapid rate of growth in income that
stimulates imports.
b. A high rate of inflation relative to other
countries.
c. A slower rate of growth in income than in other
countries, which causes imports to lag behind
exports.
d. Domestic real interest rates that are lower than
real interest rates abroad.
96.If the US dollar declines in value relative to the
currencies of many of its trading partners, the
likely result is that
a. Foreign currencies will depreciate against the
dollar.
b. The US balance of payments deficit will become
worse.
c. US exports will tend to increase.
d. US imports will tend to increase.
97.Exchange rates are determined by
a. Each industrial country’s government.
b. The International Monetary Fund.
c. Supply and demand in the foreign currency
market.
d. Exporters and importers of manufactured
goods.
98.If the value of the US dollar in foreign currency
markets changes from $1 = 6 marks to $1 = 4
marks
a. The German mark has depreciated against the
dollar.
b. German imported products in the US will
become more expensive.
c. US tourists in Germany will find their dollars will
buy more German products.
d. US exports to Germany should decrease.
99. Which of the following measures creates the
most restrictive barrier to exporting to a country
a. Tariffs.
b. Quotas.
c. Embargoes.
d. Exchange controls.
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100.Which of the following is not a foreign
exchange control that maybe implemented by a
country?
a. Banning possession of foreign currency by
citizens.
b. Fixed exchange rates.
c. Restricting currency exchange to government
approved exchangers.
d. Requiring a floating exchange rate.
101.Which of the following accurately describes a
dumping pricing policy?
a. Selling goods domestically at a price less than
cost.
b. Selling goods in another country at a price less
than cost.
c. Selling goods in another country at an
excessive price.
d. Selling goods domestically at an excessive
price.
102.What is an appropriate response by an
importing country for the payment of export
subsidies by an exporting country?
a. Countervailing duties.
b. Foreign exchange controls.
c. Trade embargo.
d. A dumping pricing policy.
103.Which of the following describes a pegged
exchange rate?
a. A currency rate that is tied to the US dollar.
b. A currency rate with its value determined by
market factors.
c. A currency market in which the country’s
central bank keeps the rate from deviating too far
from a target band or value.
d. A currency rate that is tied to the prime rate.
104. Assume that the three-month forward rate
for the euro is $1.367 and the spot rate is $1.364.
What is the forward premium or discount on the
euro?
a. 0.88% premium.
b. 0.88% discount.
c. 0.23% premium.
d. 0.23% discount.
105.When net exports are negative, there is a net
flow of
a. Goods from firms in foreign countries to the
domestic country.
b. Money from foreign countries to the firms of
the domestic country.
c. Goods from the firms of the domestic country
to foreign countries.
d. Goods and services which result in a trade
surplus.
106.Which of the following factors is leastlikely to
affect a countrys foreign currency exchange rates
a. Interest rates in the country.
b. Political stability in the country.
c. Inflation in the country.
d. The tax rate in the country.
107.Assume that the exchange rate of US dollars
to euros is $1.80 to 1 euro. How much would a US
company gain or lose if the company has a
10,000 euro receivable and the exchange rate
went $1.75 to 1 euro?
a. $10,000 loss.
b. $10,000 gain.
c. $500 loss.
d. $500 gain.
108.Simon Corp., a US company, has made a c. Analyzing the firm’s market structure.
large sale to a French company on a 120-day d. Deciding on whether to offer a new product
account payable in euros. If management of line.
Simon wants to hedge the transaction risk 116. If a firm’s customers are businesses, market
related to a decline in the value of the euro, which segmentation might be performed along all of the
of the following strategies is appropriate? following dimensions,except
a. Lend euros to another company for payment in a. Industry.
120 days. b. Location.
b. Enter into a forward exchange contract to c. Lifestyle.
purchase euros for delivery in 120 days. d. Size.
c. Enter into a futures contract to sell euros for Items 117 and 118 are based on the following
delivery in the future. information:
d. Purchase euros on the spot market. Yeager Corporation has used regression analysis
109.Which of the following is not a means by to perform price elasticity analysis. In doing so
which a firm might hedge the political risk of an management regressed the quantity demanded (y
investment in another country? variable) against price (x
a. Insurance. variable) with the following results:
b. Buy futures contracts for future delivery of the Multiple R .86798
country’s currency. Adjusted R squared .72458
c. Finance the operations with local-country Standard error 542.33
capital. Intercept 56400.50
d. Enter into joint ventures with local-country Price coefficient –4598.20
firms. 117. What percentage of the variation in quantity
Economics and Strategy demanded is explained by the price?
110. Patents are granted in order to encourage a. 86.798%
firms to invest in the research and development of b. 72.458%
new products. Patents are an example of c. 56.4%
a. Vertical integration. d. 54.233%
b. Market concentration. 118. Calculate the predicted quantity demanded if
c. Entry barriers. price is set at $7.00.
d. Collusion. a. 24,213
111. The market for product RK-25 is perfectly b. 88,588
competitive. The current market price is $30, and c. 31,234
the quantity demanded is 4 million. Due to d. 18,454
changes in consumer tastes, a permanent 119. Which of the following is not one of the five
increase in demand for RK-25 is expected in the forces in Porters model for industry analysis?
near term. If nothing else changes in this market, a. Competitors.
which of the following would be the most feasible b. Bargaining power of customers.
levels of short term and long term c. Bargaining power of suppliers.
prices?UFSNQSJDFT d. General economic conditions.
Short-term Long-term 120. Which of the following is a defining
a. $39 $35 characteristic of supply chain management?
b. $35 $39 a. Focuses on the sharing of information with
c. $35 $30 suppliers and customers.
d. $30 $35 b. Focuses on redesigning processes.
112. The ultimate purpose of competitor analysis c. Focuses on improving quality.
is to d. Focuses on strategic alliances.
a. Identify the competition. 121. Which of the following is no a likely strategy
b. Determine the competition’s strength and for a firm in a purely competitive market?
weaknesses. a. Lean manufacturing.
c. Identify the competition’s major customers. b. Supply chain management.
d. Understand and predict the behavior of the c. Process reengineering.
competition. d. Development of a brand name.
113. Which of the following is not an important 122. What is the purpose of a response profile in
aspect of supply chain management? competitor analysis?
a. Information technology. a. To develop an understanding of the firm’s
b. Accurate forecasts. industry.
c. Customer relations. b. To analyze the firm’s strengths in relation to its
d. Communications. competitors.
114. Which of the following types of organizations c. To identify possible actions by competitors.
would d. To understand the nature of the firm’s major
mostlikely engage in public relations type markets.
advertising? 123. The process of dividing all potential
a. An airline. consumers into smaller groups of buyers with
b. A hotel chain. distinct needs, characteristics, or behaviors, who
c. A toy manufacturer. might require a similar product or service mix, is
d. An electric utility company. called
115. Target marketing analysis involves a. Strategic planning.
a. Analyzing the firm’s input markets. b. Market segmentation.
b. Understanding and segmenting the firm’s c. Product positioning.
customer markets. d. Objective setting.

8
124. Which of the following measures of
unemployment would be of least importance to
management when trying to predict the future
state of the economy?
a. Structural unemployment.
b. Cyclical unemployment.
c. Frictional unemployment.
d. Overall unemployment.
125. Which of the following best describes the
steps involved in competitor analysis
a. Gathering information about the competitor and
using it to predict the competitor’ behavior.
b. Determining the type of market structure and
the number of competitors.
c. Assessing the general environment and
determining how that affects competition.
d. Assessing the market structure to predict when
new competitors will enter the market.
126. All of the following are ways that companies
in developed countries generally may compete
with companies in developing countries except
a. Technology.
b. Customer service.
c. Quality.
d. Low-cost resources.