Question 1

An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:
1) Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2) Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3) Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4) The current penetration rate in the United States is 60% of households and will be difficult to increase.
5) Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6) Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7) Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8) New manufacturers continue to enter the market.
Characteristics 4 and 5 would indicate that the industry is in the ________ stage.

Accepted Answer

Characteristics 4 and 5 suggest that the industry has reached maturity. The market is already penetrated, and price competition is fierce, indicating that manufacturers are struggling to differentiate themselves. Additionally, the fact that some companies are able to create new niches based on reputation, quality, and service suggests that the industry is mature enough for that to be possible. The other characteristics, such as growth rates, market expansion, consolidation, and new entrants, are typical of a growing, dynamic industry, which is not yet in decline.

Question 2

Which of the following are examples of cyclical industries?
I. Washing Machines
II. Computer chip manufacturers
III. Kellogg's Frosted Flakes
IV. Pfizer

Accepted Answer

Washing machines and computer chip manufacturers are examples of cyclical industries as their demand is directly correlated with economic conditions and consumers' willingness to spend. Kellogg's Frosted Flakes and Pfizer, on the other hand, are not cyclical industries as their demand is relatively stable and not as dependent on economic conditions.

Question 3

Which of the following actions should the central bank take if monetary authorities want to reduce the supply of money to slow the rate of inflation?

Accepted Answer

Selling government bonds reduces the money supply as people use money from their accounts to purchase the bonds. This reduces aggregate demand and interest rates rise, which slows down inflation. Buying government bonds would increase the money supply, which would lead to increased demand and higher inflation. Decreasing the discount rate or increasing taxes would also have limited impact on reducing the supply of money.

Question 4

An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:
1) Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2) Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3) Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4) The current penetration rate in the United States is 60% of households and will be difficult to increase.
5) Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6) Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7) Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8) New manufacturers continue to enter the market.
Characteristics ________ would be typical of an industry that is in the start-up stage.

Accepted Answer

The characteristics described do not align with a start-up stage industry but rather suggest an industry that is in a growth or possibly maturity stage, given the high growth rates, market penetration, price competition, market consolidation, and exploration of new markets.

Question 5

The goal of supply-side policies is to ________.

Accepted Answer

Supply-side policies aim to create an environment in which workers and owners of capital have the maximum incentive and ability to produce and develop goods. This includes policies such as reducing tax rates on businesses and individuals, reducing regulatory burdens, and promoting free trade. The ultimate goal is to increase productivity and economic growth, which can lead to increased employment, higher wages, and greater prosperity for all. The other choices are not accurate descriptions of supply-side policies.

Question 6

The supply of funds in the economy is controlled primarily by ________.

Accepted Answer

The Federal Reserve System is responsible for controlling the supply of funds in the economy. They accomplish this through a variety of mechanisms, such as setting interest rates and regulating banks' reserve requirements. Congress, money center banks, and the Treasury department all play a role in the economy, but they do not have as direct a role in controlling the supply of funds.

Question 7

Countercyclical fiscal policy is best described by which of the following statements?

Accepted Answer

Countercyclical fiscal policy involves increasing government spending or decreasing taxes during economic downturns (recessions) and decreasing government spending or increasing taxes during economic booms. This approach aims to stabilize the economy by counteracting the business cycle, hence planning government surpluses during booms and deficits during recessions.

Question 8

An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:
1) Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2) Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3) Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4) The current penetration rate in the United States is 60% of households and will be difficult to increase.
5) Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6) Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7) Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8) New manufacturers continue to enter the market.
Characteristics ________ would be typical of an industry that is in the consolidation stage.

Accepted Answer

Characteristics 6 and 7 are indicative of an industry in the consolidation stage, where larger companies acquire smaller ones to increase their market share and reduce competition. The fact that some manufacturers are able to develop new niche markets based on reputation, quality, and service suggests that the industry is becoming more mature and stable, which is also a characteristic of the consolidation stage.

Question 9

An expanding economy requires more workers. If the supply of workers becomes inadequate to meet the demand, what is the likely impact on the economy?

Accepted Answer

When the supply of workers becomes inadequate to meet demand, competition among employers for a limited number of workers may lead to upward wage pressures. As companies raise wages to attract workers, the cost of production increases, which can result in higher prices for goods and services. This can lead to inflationary pressures which can have negative effects on the economy.

Question 10

A supply-side economist would likely agree with which of the following statements?

Accepted Answer

Supply-side economists believe that economic growth can be most effectively created by lowering taxes and decreasing regulation, which they argue will increase production, or supply. They argue that consumers will then benefit from a greater supply of goods and services at lower prices and that employment will increase.

Question 11

The expansion of the money supply at a rate that exceeds the increase in goods and services will likely result in ________.

Accepted Answer

When the money supply grows faster than the increase in goods and services, it creates a situation of "too much money chasing too few goods". As a result, the demand for goods and services increases but the supply remains the same, leading to an increase in prices, i.e., inflation. Therefore, option B is the correct answer.

Question 12

The federal government decides to pay for the transition to private social security accounts with a one-time $1 trillion bond issue. What will be the biggest concern to businesses relative to the "crowding out" effect?

Accepted Answer

The "crowding out" effect describes the situation where increased government borrowing leads to higher interest rates, thus making it more expensive for businesses to borrow money. This could be the biggest concern for businesses as they face higher costs of borrowing, which can reduce their ability to invest in growth and expansion. Choice B is also a concern, but it may not be the biggest concern for businesses relative to interest rates. Choices C and D are not directly related to the "crowding out" effect.

Question 13

You would expect the beta of cyclical industries to be ________ and the beta of defensive industries to be ________.

Accepted Answer

Cyclical industries have a higher beta, indicating greater volatility in earnings and stock prices, while defensive industries tend to have lower beta, indicating less volatility. Since beta measures the volatility of a stock or portfolio in relation to the market, a beta greater than 1 means that the stock or portfolio is more volatile than the market. A beta less than 1 indicates that it is less volatile than the market.

Question 14

The fed funds rate is the ________.

Accepted Answer

The fed funds rate is the interest rate that banks charge each other for overnight loans of deposits on reserve at the Fed.

Question 15

The classification system used to classify firms into industries is now called the ________ code.

Accepted Answer

The current classification system used to classify firms into industries is called the North American Industry Classification System (NAICS). The Standard Industrial Classification (SIC) code was an earlier classification system that has since been replaced by NAICS. ISO 57 and ISM are not commonly used classification systems for industries.

Question 16

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

Accepted Answer

Corporate profits are closely associated with the level of economic output in a country, which is measured by gross domestic product (GDP). As GDP increases, firms generally experience greater sales and revenue, leading to higher profits. Exchange rates, inflation, and budget deficits can also impact corporate profits, but they are less directly linked to economic output.

Question 17

An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:
1) Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2) Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3) Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4) The current penetration rate in the United States is 60% of households and will be difficult to increase.
5) Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6) Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7) Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8) New manufacturers continue to enter the market.
Which of the characteristics would be typical of an industry that is in the maturity stage?

Accepted Answer

Characteristics 4 and 5 indicate that the industry is mature. The high penetration rate in the United States suggests that the market may be nearing saturation, and price wars are a common feature of mature industries as companies compete for market share. The other characteristics suggest that the industry is still in a growth phase, with companies exploring new markets and developing new products.

Question 18

An expanding economy puts stress on the manufacturing ability of a company. When a firm turns business down during periods of economic expansion, a problem exists in the area of ________.

Accepted Answer

When a firm turns business down during periods of economic expansion, it indicates that the firm is not able to meet the demand due to the lack of capacity utilization, which means that their manufacturing ability is not sufficient to fulfill the orders. Therefore, the problem exists in the area of capacity utilization. The other options may also play a role, but the given scenario specifically points towards capacity utilization.

Question 19

Firm B produces gadgets. The price of gadgets is $2 each. Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget. The corporate tax rate is 40%. What is the breakeven number of gadgets B must sell to make a zero after-tax profit?

Accepted Answer

Breakeven = 11eaaae8_8b55_9e3e_a4b8_7b364203f4a0_TB6474_11 = 500,000 units

Question 20

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

Accepted Answer

When the dollar declines in value relative to the yen, U.S. goods become cheaper for Japanese consumers, leading to an increase in imports of U.S. goods into Japan.

Quiz 12: Macroeconomic and Industry Analysis

Which of the following are examples of cyclical industries? I. Washing Machines II. Computer chip manufacturers III. Kellogg's Frosted Flakes IV. Pfizer