________ is a proposition that a strong proponent of supply side economics would most likely stress.

Select one:

a. None of these is a likely statement for a supply-side proponent.

b. A tax reduction will increase the disposable income of households, and thus, the primary impact of a
tax reduction on aggregate supply will stem from the influence of the tax change on the size of the
budget deficit or surplus.

c. Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest
rates as they depend on government revenues.

d. Income redistribution payments will exert little impact on real aggregate supply as they do not
consume resources directly.

e. Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as
they encourage investors to undertake low productivity projects with substantial tax shelter benefits.

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The correct answer is: Higher marginal tax rates promote economic inefficiency and thereby retard
aggregate output as they encourage investors to undertake low productivity projects with substantial
tax shelter benefits.

Question 2

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

Select one:

a. stagnant; little

b. stable; no

c. expanding; little

d. expanding; ample

e. stagnant; ample

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The correct answer is: stagnant; little

Question 3
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A firm in an industry that is very sensitive to the business cycle will likely have a stock beta __________.

Select one:

a. greater than 1.0

b. equal to or less than 0.0

c. There is no relationship between beta and sensitivity to the business cycle.

d. less than 1.0 but greater than 0.0

e. equal to 1.0

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The correct answer is: greater than 1.0

Question 4

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A firm in the early stages of the industry life cycle will likely have _______.

Select one:

a. high market penetration and rapid growth

b. high risk

c. rapid growth

d. high risk and rapid growth

e. high market penetration

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The correct answer is: high risk and rapid growth

Question 5

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A peak is _______.

Select one:

a. a depression that lasts more than three years

b. a transition from an expansion in the business cycle to the start of a contraction

c. a transition from a contraction in the business cycle to the start of an expansion

d. None of these is correct.

e. only a feature of geography and not an investment term

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The correct answer is: a transition from an expansion in the business cycle to the start of a contraction

Question 6

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

Select one:

a. expanding; little

b. stable; no

c. stagnant; ample

d. expanding; ample

e. stagnant; little

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The correct answer is: expanding; ample

Question 7

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A top down analysis of a firm starts with ___________.

Select one:

a. the absolute value of the firm

b. the domestic economy

c. the industry outlook

d. the global economy

e. the relative value of the firm

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The correct answer is: the global economy

Question 8

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A trough is _______.

Select one:

a. a transition from an expansion in the business cycle to the start of a contraction

b. only something used by farmers to feed pigs and not an investment term

c. a transition from a contraction in the business cycle to the start of an expansion

d. None of these is correct.

e. a depression that lasts more than three years

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The correct answer is: a transition from a contraction in the business cycle to the start of an expansion

Question 9

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A variety of factors relating to industry structure affect the performance of the firm, including

Select one:

a. threat of entry and the state of the economy.

b. rivalry between existing competitors.

c. threat of entry and rivalry between existing competitors.

d. threat of entry.

e. the state of the economy.

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The correct answer is: threat of entry and rivalry between existing competitors.

Question 10

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An example of a highly cyclical industry is _______.

Select one:

a. the automobile industry

b. the food industry

c. the tobacco industry and the food industry

d. the tobacco industry

e. the automobile industry and the tobacco industry

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The correct answer is: the automobile industry

Question 11

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Question text

Assume that the Federal Reserve decreases the money supply. This action will cause ________ to
decrease.

Select one:

a. trade balance

b. the unemployment rate

c. interest rates

d. None of these is correct.

e. investment in the economy

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The correct answer is: investment in the economy

Question 12

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Assume the U. S. government was to decide to decrease the budget deficit. This action will most likely
cause __________ to decrease.

Select one:

a. None of these is correct

b. interest rates

c. unemployment

d. interest rates and government borrowing

e. government borrowing

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The correct answer is: interest rates and government borrowing

Question 13

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Assume the U. S. government was to decide to increase the budget deficit. This action will most likely
cause __________ to increase.

Select one:

a. interest rates and government borrowing

b. government borrowing

c. unemployment

d. None of these is correct.

e. interest rates

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The correct answer is: interest rates and government borrowing

Question 14

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

Select one:

a. slow-growers and stalwarts

b. stalwarts

c. countercyclicals

d. slow-growers and countercyclicals.

e. slow-growers

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The correct answer is: slow-growers and stalwarts

Question 15

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Demand-side economics is concerned with ______.

Select one:

a. government spending and tax levels and monetary policy

b. government spending and tax levels, monetary policy, and fiscal policy

c. government spending and tax levels

d. fiscal policy

e. monetary policy

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The correct answer is: government spending and tax levels, monetary policy, and fiscal policy

Question 16

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Fiscal policy generally has a _______ direct impact than monetary policy on the economy, and the
formulation and implementation of fiscal policy is ______ than that of monetary policy.

Select one:

a. more, quicker

b. less, quicker

c. Cannot tell from the information given

d. less, slower

e. more, slower

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The correct answer is: more, slower

Question 17

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Fiscal policy is difficult to implement quickly because

Select one:

a. increases in tax rates affect consumer spending gradually.

b. it requires political negotiations.

c. it requires political negotiations and much of government spending is nondiscretionary and cannot be
changed.

d. it requires political negotiations and increases in tax rates affect consumer spending gradually.

e. much of government spending is nondiscretionary and cannot be changed.

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The correct answer is: it requires political negotiations and much of government spending is
nondiscretionary and cannot be changed.

Question 18

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GDP refers to ________.

Select one:

a. None of these is correct.

b. the total production of goods and services in the economy

c. the total manufacturing output in the economy

d. the amount of personal disposable income in the economy

e. the difference between government spending and government revenues

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The correct answer is: the total production of goods and services in the economy

Question 19

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If interest rates increase, business investment expenditures are likely to ______ and consumer durable
expenditures are likely to ________.

Select one:

a. decrease, decrease

b. increase, decrease

c. be unaffected, be unaffected

d. increase, increase

e. decrease, increase

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The correct answer is: decrease, decrease

Question 20

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

Select one:

a. discourage, stimulate

b. discourage, discourage

c. stimulate, stimulate

d. stimulate, discourage

e. not affect, not affect

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The correct answer is: discourage, stimulate

Question 21
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If the currency of your country is depreciating, the result should be to ______ exports and to _______
imports.

Select one:

a. stimulate, stimulate

b. discourage, discourage

c. not affect, not affect

d. discourage, stimulate

e. stimulate, discourage

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The correct answer is: stimulate, discourage

Question 22

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

Select one:

a. higher increases in profits than firms with low operating leverage

b. None of these is correct.

c. smaller increases in profits than firms with low operating leverage

d. similar increases in profits as firms with low operating leverage

e. no change in profits

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The correct answer is: higher increases in profits than firms with low operating leverage

Question 23
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If the economy is growing, firms with low operating leverage will experience _________.

Select one:

a. smaller increases in profits than firms with high operating leverage

b. similar increases in profits as firms with high operating leverage

c. higher increases in profits than firms with high operating leverage

d. None of these is correct

e. no change in profits

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The correct answer is: smaller increases in profits than firms with high operating leverage

Question 24

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

Select one:

a. None of these is correct.

b. smaller decreases in profits than firms with low operating leverage

c. similar decreases in profits as firms with low operating leverage

d. no change in profits

e. higher decreases in profits than firms with low operating leverage

Feedback

The correct answer is: higher decreases in profits than firms with low operating leverage

Question 25

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Question text

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

Select one:

a. similar decreases in profits as firms with high operating leverage

b. no change in profits

c. smaller decreases in profits than firms with high operating leverage

d. higher decreases in profits than firms with high operating leverage

e. None of these is correct.

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The correct answer is: smaller decreases in profits than firms with high operating leverage

Question 26

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

Select one:

a. automobile and construction

b. automobile

c. construction

d. medical services and construction

e. medical services

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The correct answer is: medical services

Question 27

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In the consolidation stage of the industry life-cycle

Select one:

a. industry growth is very rapid.

b. the performance of firms will more closely track the performance of the overall industry.

c. industry growth is very rapid and the performance of firms will more closely track the performance of
the overall industry

d. it is difficult to predict which firms will succeed and which firms will fail and industry growth is very
rapid.

e. it is difficult to predict which firms will succeed and which firms will fail.

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The correct answer is: the performance of firms will more closely track the performance of the overall
industry.

Question 28

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In the decline stage of the industry life cycle

Select one:

a. the industry may experience negative growth.

b. the product may have reached obsolescence.

c. the product may have reached obsolescence, the industry will grow at a rate less than the overall
economy, and the industry may experience negative growth.

d. the product may have reached obsolescence and the industry will grow at a rate less than the overall
economy.

e. the industry will grow at a rate less than the overall economy.

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The correct answer is: the product may have reached obsolescence, the industry will grow at a rate less
than the overall economy, and the industry may experience negative growth.

Question 29

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In the maturity stage of the industry life cycle

Select one:

a. producers are forced to compete on price to a greater extent.

b. the product has reached full potential and profit margins are narrower.

c. the product has reached full potential.

d. the product has reached full potential, profit margins are narrower, and producers are forced to
compete on price to a greater extent.

e. profit margins are narrower.

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The correct answer is: the product has reached full potential, profit margins are narrower, and
producers are forced to compete on price to a greater extent.

Question 30

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In the start-up stage of the industry life cycle

Select one:

a. industry growth is very rapid.

b. firms pay a high level of dividends.

c. it is difficult to predict which firms will succeed and which firms will fail.

d. it is difficult to predict which firms will succeed and which firms will fail and industry growth is very
rapid.
e. industry growth is very rapid and firms pay a high level of dividends.

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The correct answer is: it is difficult to predict which firms will succeed and which firms will fail and
industry growth is very rapid.

Question 31

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

Select one:

a. be unaffected, be unaffected

b. increase, decrease

c. increase, increase

d. decrease, increase

e. decrease, hold steady

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The correct answer is: increase, increase

Question 32

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Industrial production refers to ________.

Select one:

a. the total manufacturing output in the economy

b. the amount of personal disposable income in the economy

c. the total production of goods and services in the economy

d. the difference between government spending and government revenues

e. None of these is correct

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The correct answer is: the total manufacturing output in the economy

Question 33

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Inflation

Select one:

a. rates are high when the economy is considered to be "overheated."

b. is the rate at which the general level of prices is increasing; and rates are high when the economy is
considered to be "overheated."

c. is the rate at which the general level of prices is increasing.

d. is unrelated to unemployment rates.

e. is the rate at which the general level of prices is increasing; and is unrelated to unemployment rates.

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The correct answer is: is the rate at which the general level of prices is increasing; and rates are high
when the economy is considered to be "overheated."

Question 34

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Monetary policy in the U.S. is determined by

Select one:

a. congressional actions.

b. the board of Governors of the Federal Reserve System.

c. presidential mandates.

d. government budget decisions.

e. None of these is correct.

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The correct answer is: the board of Governors of the Federal Reserve System.

Question 35

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Supply-side economists wishing to stimulate the economy are most likely to recommend

Select one:

a. a decrease in the tax rate.

b. None of these is correct.

c. a decrease in the money supply.

d. an increase in the real interest rate.

e. a decrease in production output.

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The correct answer is: a decrease in the tax rate.

Question 36

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The "normal" range of price-earnings ratios for the S&P500 Index is

Select one:

a. between 2 and 10.

b. less than 8.

c. between 5 and 15.

d. between 12 and 25.

e. greater than 20.

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The correct answer is: between 12 and 25.

Question 37

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

Select one:

a. the budget deficit.

b. None of these is correct.

c. the balance of trade.

d. unimportant to the U.S. economy.

e. the purchasing power ratio.

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The correct answer is: the purchasing power ratio.

Question 38

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

Select one:

a. None of these is correct.

b. lagging economic indicators

c. coincidental economic indicators

d. leading economic indicators

e. composite economic indicators

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The correct answer is: lagging economic indicators

Question 39

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Question text

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

Select one:

a. Absolute decline.

b. Start-up.

c. Consolidation.

d. Start-up, consolidation and absolute decline.

e. Start-up and consolidation.

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The correct answer is: Start-up and consolidation.

Question 40

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The most widely used monetary tool is __________.

Select one:

a. None of these is correct.

b. altering the discount rate

c. altering marginal tax rates

d. open market operations

e. altering the reserve requirements

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The correct answer is: open market operations

Question 41

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Question text

The North American Industry Classification System (NAICS) codes

Select one:

a. are for firms that operate in the NAFTA region.

b. are for firms that operate in the NAFTA region and group firms by industry.

c. group firms by industry.

d. are for firms that operate in the NAFTA region and are a perfect classification system for firms.

e. are a perfect classification system for firms.

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The correct answer is: are for firms that operate in the NAFTA region and group firms by industry.

Question 42

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

Select one:

a. not useful as economic indicators.

b. leading economic indicators.

c. coincidental economic indicators.

d. None of these is correct

e. lagging economic indicators.

Feedback

The correct answer is: leading economic indicators.

Question 43

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Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of
$500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable
costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell
1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the
economy enters a recession, the after-tax profit of Firm A will be _______.

Select one:

a. $0

b. None of these is correct

c. $30,000

d. $6,000

e. $60,000

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The correct answer is: $30,000

Question 44

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Question text

Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of
$500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable
costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell
1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the
economy enters a recession, the after-tax profit of Firm B will be ______.

Select one:

a. $0
b. None of these is correct

c. $36,000

d. $60,000

e. $6,000

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The correct answer is: None of these is correct

Question 45

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Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of
$500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable
costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell
1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the
economy is strong, the after-tax profit of Firm A will be ______.

Select one:

a. $60,000

b. $36,000

c. $0

d. None of these is correct

e. $6,000

Feedback

The correct answer is: $60,000

Question 46

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Question text
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of
$500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable
costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell
1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the
economy is strong, the after-tax profit of Firm B will be _________.

Select one:

a. $36,000

b. None of these is correct

c. $6,000

d. $0

e. $60,000

Feedback

The correct answer is: $36,000

Question 47

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Question text

Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of
$500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable
costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell
1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. Calculate
firm A's degree of operating leverage.

Select one:

a. None of these is correct

b. 2.86

c. 9.09

d. 11.0

e. 1.00

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The correct answer is: 11.0

Question 48
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Question text

Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of
$500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable
costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell
1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. Calculate
firm B's degree of operating leverage.

Select one:

a. .714

b. 7.86

c. 9.09

d. 7.14

e. None of these is correct

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The correct answer is: 7.86

Question 49

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Question text

Which of the following are examples of defensive industries?

Select one:

a. Pharmaceutical firms.

b. Durable goods producers.

c. Food producers.

d. Public utilities.

e. Food producers, pharmaceutical firms and Public utilities

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The correct answer is: Food producers, pharmaceutical firms and Public utilities

Question 50

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Which of the following are not examples of defensive industries?

Select one:

a. Durable goods producers.

b. Food producers.

c. Durable goods producers and pharmaceutical firms.

d. Pharmaceutical firms.

e. Public utilities.

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The correct answer is: Durable goods producers.