economics

leading indicator of economic growth?

A leading indicator predicts economic trends. Such indicators include steel shipments, stock market indices, manufacturing orders, and housing starts.

A company's changing from straight line to accelerated depreciation will:

Accelerated depreciation increases charged expenses during the early years of equipment life but decreases charged expenses during the later years.

Which of the following describes additional paid-in capital?

Additional paid-in capital is the difference between the dollar amount received from the sale of stock and the stock's aggregate par value. Earned surplus is another name for retained earnings.

If a customer purchases a food company stock and a utility stock, the customer's portfolio is:

Food company stocks and utilities are defensive investments. Defensive investments are those that tend to hold up well in economic downturns.

If XYZ Corporation sells an additional 1 million common stock with a par value of $1 for $10 per share, which of the following is TRUE?

Paid-in surplus is a balance sheet entry that accounts for money raised from the issuance of stock in excess of par value. When more shares are sold, paid-in surplus will increase.

The economic theory that says economic growth results from lower tax rates and lower government spending is:

Supply-side economics is the theory of Arthur Laffer, who believed that heavy taxing and government intervention have a negative effect on the economy.

A tool that is NOT used by the FRB to control the money supply is:

The prime rate is the rate of interest charged by banks to their best customers. The prime rate reacts to the FRB's tools, but it is not one of them.

Which of the following events is of the greatest importance to a technical analyst?

The stock's price recently penetrated its resistance level...Technical analysts focus on market price patterns. Typically, a technical analyst becomes bullish when a stock's price exceeds its resistance level (it penetrates its former ceiling price). Book values, credit ratings, and the resignation of a company's senior officer are of interest to fundamental analysts.

XYZ corporation divests itself of all of the shares of another company it owns. This is known as:

When one company sells all of the shares of another it owns, this is called a spin-off.

All of the following actions will increase the deficit in the U.S. balance of payments EXCEPT:

A debit in the U.S. balance of payments occurs when the country pays out more abroad than it takes in. This occurs when the U.S. imports more than it exports, invests money abroad, or sends money to foreign countries in the form of foreign aid.

Which of the following is considered the most accurate method of measuring GDP?

Constant dollars... Constant dollars are mathematically adjusted to remove the effects of inflation, so when economists compare the gross domestic product of one period with that of another, they measure economic activity rather than inflation.

The common stock of all of the following corporations is considered defensive stock EXCEPT stock of a(n):

Defensive stocks generally have little volatility. Firms that produce nondurable consumer goods (tobacco, food, drugs, energy) are more immune to the business cycles than other industries and are sometimes called defensive industries. This term has nothing to do with the defense industry that supplies the Pentagon with goods and services.

Disintermediation is most likely to occur when:

Disintermediation is the flow of deposits out of banks and savings and loans into alternative, higher paying investments. It occurs when money is tight and interest rates are high because these alternative investments may then offer higher yields than S&Ls and banks.

Defensive stocks

Firms that produce nondurable consumer goods (tobacco, food, drugs, energy)

An inverted Head and Shoulders Formation would mean which of the following to a chartist?

Head and Shoulders Formations indicate the reversal of market trends to chartists. An inverted formation would forecast the reversal of a downtrend. A Head and Shoulder's Top Formation would forecast the reversal of an uptrend.

Which of the following economists supports demand-side economics?

John Maynard Keynes was the first demand-side economist. He believed that by increasing the income available for spending and saving, a government could increase demand and improve the country's economic well-being. Higher taxes and higher government spending are key tenets of this theory.

Which of the following are part of M2, but NOT M1?

Money market funds are part of M2, but not M1. M2 includes everything in M1, plus time deposits and money market funds.

The term "disintermediation" refers to:

This is the industry-accepted definition of disintermediation, and it typically occurs when the Federal Reserve Board tightens the money supply and interest rates rise faster in the marketplace than at bank accounts.

To determine the amount of change in the GDP from one year to another, both years' GDP should be converted into:

To compare GDP from one year to another, and thus to compare the amount of actual economic activity, economists use constant dollars to eliminate distortions caused by inflation.

ABC, with 3 million shares outstanding, reports after-tax earnings of $7.5 million. Annual cash dividends total $1 per share. The dividend payout ratio is:

To compute this ratio, multiply the $1 dividend by 3 million shares to get the total dividend paid of $3 million. $3 million is 40% of the $7.5 million in earnings available to common.

defensive security

Tobacco, alcohol, and utilities are defensive securities because they are not affected by the business cycle.

In a rising price environment, which of the following inventory valuation methods will result in the highest reported earnings?

Using first in, first out (FIFO) means lower cost inventory is used first in determining the cost of goods sold. This has the effect of inflating earnings. Using last in, first out (LIFO) means higher cost inventory is used to determine the cost of goods sold. In a rising price environment, LIFO better matches cost with revenue.

The working capital of a corporation includes all of the following EXCEPT:

convertible bonds

working capital

current assets - current liabilities ....key work CURRENT

Working capital is:

current assets - current liabilities.

Shareholders equity...

is only affected by gains, losses, new invested capital, cash distributions to shareholders

In its efforts to control the money supply, the Board of Governors of the Federal Reserve System has a number of tools at its disposal. The one used most frequently is:

open market transactions by the FOMC...The Federal Open Market Committee (FOMC) meets every 6 weeks. The other actions are taken as needed, sometimes less than once per year.