SIE Unit 9 - Economics

The economy appears to be moving into a strong expansion. Which of the following companies will likely benefit the most from this expansion? A) Old Bess Steel, Inc. B) Dino Oil and Gas, Co. C) Daisy Dairy Company D) Hinckley Gold and Silver Corp.

A

Which of the following describes a period where the prices of goods are consistently drifting lower? A) Deflation B) Inflation C) Stagflation D) Stagnation

A

A toy company is experiencing sudden strong demand for a game. Purchasing this company's stock may prove profitable in the short run. This company's stock might best be termed as A) a special situation. B) a growth. C) a short sale. D) a cyclical.

A

All the following are coincident indicators except A) changes in durable goods inventories. B) trade sales. C) retail employment. D) personal income.

A

All the following are lagging indicators except A) personal income. B) corporate profits. C) outstanding commercial loans. D) labor cost per unit of output.

A

Irksome Inc., makes components and peripherals for smart phones. Their line of bright florescent sparkly earbuds has taken off in Asia and is starting to gain popularity in the Americas and Europe, even in countries experiencing harder economic times. Irksome is an example of a A) growth company. B) defensive company. C) countercyclical company. D) cyclical company.

A

Occasionally our economy experiences an unusual combination of rising prices and high unemployment. Economists have given this unusual pairing what name? A) Stagflation B) Deflation C) Stagnation D)

A

The most common way of measuring purchasing power risk is A) the CPI. B) the GDP. C) the DND. D) the GNP.

A

The business cycle includes all of the following classifications except A) trough. B) waves. C) expansion. D) peak.

B

A gold mining company is probably an example of what industry? A) Cyclical B) Defensive C) Counter-cyclical D) Growth

C

Which of the following is an example of a company in a defensive industry? A) National Motors, an automobile manufacturer B) Pan American Aircraft, an airplane producer C) Major Mills Grain Company, a grain and cereal producer D) Centipede Equipment, a heavy equipment manufacturer

C

First Amalgamated Bank of Buffalo, a large commercial bank, is a member of the Federal Reserve System. Should the bank need to increase its reserves, it could do which of these? Borrow from the FRB and pay the discount rate. Borrow from the FRB and pay the federal funds rate. Borrow from another member bank and pay the discount rate. Borrow from another member bank and pay the federal funds rate. A) II and III B) II and IV C) I and III D) I and IV

D

First Mate Coffee Company has reported the following financial results for the prior quarter: Earnings: $75 million Interest: $5 million Taxes: $25 million Depreciation: $2 million Amortization: $3 million What is First Mate's earnings before interest, taxes, depreciation, and amortization (EBITDA)? A) $35 million B) $70 million C) $50 million D) $75 million

D

The actions taken by the Federal Reserve to manage the economy are based on which of the following economic theories? A) Keynesian theory B) Sharpe theory C) Dickensian theory D) Monetary theory

D

When the money supply in the economy increases, A) interest rates go up, hence borrowing and spending for consumers is more difficult. B) interest rates go up, hence borrowing and spending for consumers is easier. C) interest rates go down, hence borrowing and spending for consumers is more difficult. D) interest rates go down, hence borrowing and spending for consumers is easier.

D

Which of the following best fits the description of a growth stock? A) Common shares in companies that pay a high dividend on rapid growth experience B) Common or preferred shares in companies, which experience growth in unusual, nonrecurring profitable circumstances C) Preferred shares in companies that back stated dividends with investments in pharmaceutical companies D) Common shares in companies that retain earnings and pays little or no dividends

D

Which of the following is not a measure of a company's short-term liquidity? A) Current ratio B) Working capital C) Acid test ratio D) Debt ratio

D

Which of these does M2 measure? M1 M3 Term repos and jumbo CDs Retail CDs and money markets A) II and III B) I and III C) II and IV D) I and IV

D

Increasing cost of goods and services and high unemployment are characteristics of A) inflation. B) stagnation. C) stagflation. D) deflation.

C

Which of the following interest rates do large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans? A) Federal funds rate B) Broker call loan rate C) Discount rate D) Prime rate

D

A bank is likely to do which of the following when the Federal Reserve Board (FRB) eases the money supply? A) Raise its prime rate B) Lower its prime rate C) Raise its broker call loan rate D) Lower the hypothecation loan rate

B

The U.S. balance of payments deficit would decrease in all of the following scenarios except A) an increase in exports of domestic goods from the United States. B) a decrease in purchases of U.S. securities by foreign investors. C) a decrease in dividend payments by U.S. companies to foreign investors. D) a decrease in imports of foreign goods into the United States.

B

A bank is likely to do which of the following when the Federal Reserve Board (FRB) eases the money supply? A) Lower the hypothecation loan rate B) Raise its prime rate C) Lower its prime rate D) Raise its broker call loan rate

C

Downturns in the business cycle or economic contractions are characterized by all of the following except A) falling inventories. B) higher consumer debt. C) rising numbers of bond defaults. D) rising numbers of bankruptcies.

A

Economic growth has slowed to a halt with little consumer demand, but prices for goods and services are still rising. This is known as economic A) stagflation. B) contraction. C) deflation. D) stagnation.

A

Federal Reserve member banks needing to borrow money can borrow from A) the Federal Reserve Bank at the discount rate. B) the Federal Reserve Bank at the federal funds rate. C) nonmember banks at the federal funds rate. D) member firms at the discount rate.

A

Fiscal policy seeks to encourage or discourage economic activity through the A) use of government spending and taxation. B) management of money supply and government spending. C) management of money supply and taxation. D) use of government spending and interest rate controls.

A

GHI Corporation reported the following financial results for the prior quarter: Earnings: $50 million Interest: $5 million Taxes: $15 million Depreciation: $1 million Amortization: $1 million What is GHI's EBITDA? A) $50 million B) $28 million C) $30 million D) $45 million

A

If large money center commercial banks begin to lower their prime rates, which of the following is most likely to occur? A) Smaller banks will lower lending rates for creditworthy corporate customers as well. B) Smaller banks will follow by lowering the discount rate. C) Smaller banks will need to offset the lower prime rate by increasing the broker call loan rate. D) Smaller banks will need to increase their lending rates for creditworthy corporate customers.

A

In order to accelerate growth in a slowing economy, demand-side theory would suggest which of the following steps? A) Lower taxes B) Decrease regulation C) Decrease spending D) Raise taxes

A

It is generally agreed upon that the most volatile interest rate in the U.S. economy is A) the federal funds rate. B) the discount rate. C) the call money rate. D) the prime rate.

A

M1 is a measure of the value of A) cash and funds held in DDAs. B) cash, cash equivalents, and DDAs. C) retail CDs and money markets. D) M2 plus retail CDs and money markets.

A

The Federal Reserve Board (FRB) might impact the money supply by using all of the following except A) prime rate. B) buying or selling securities in open market. C) reserve requirements for member banks. D) discount rate.

A

The Federal Reserve pursues its dual mandate through A) monetary policy. B) trade policy. C) economic policy. D) fiscal policy.

A

The Federal Reserve's dual mandate includes which of these? Maintaining maximum employment Enforcement of price controls Control the value of the dollar versus other currencies Price stability A) I and IV B) I and II C) II and III D) III and IV

A

The economy is showing that employment is low, there is little consumer demand, and loans for expansion and retooling are way down, showing a lack of business activity. Yet prices for consumer goods are still rising. Economists would call this a period of A) stagflation. B) deflation. C) inflation. D) stagnation.

A

The most commonly referenced indicator of economic activity is A) GDP. B) Dow. C) CPI. D) GNP.

A

To stimulate the economy during a recession by expanding the availability of credit, the Federal Reserve Board (FRB) would do any of the following except A) raise the federal funds rate. B) buy U.S. government securities in open-market operations. C) lower the reserve requirement. D) lower the discount rate.

A

When a broker-dealer borrows money to fund margin purchases, the rate for this loan is called A) the broker call loan rate. B) the reserve rate. C) the margin interest rate. D) the prime rate.

A

Where on a balance sheet would you find the estimated value of a retail company's inventory? A) Current assets B) Net worth C) Fixed assets D) Current liabilities

A

Which of the following are characteristics of the expansion phase of the business cycle? A) Increase industrial production B) Rising inventories C) Increasing defaults D) Higher consumer debt

A

Which of the following correctly states the impact of open-market operations taken by the Federal Reserve Board (FRB)? A) By buying securities, the FRB puts money into the banking system, expanding the money supply and reducing interest rates. B) By selling securities, the FRB takes money out of the banking system, expanding the money supply and increasing interest rates. C) By buying securities, the FRB takes money out of the banking system, expanding the money supply and increasing interest rates. D) By selling securities, the FRB puts money into the banking system, expanding the money supply and reducing interest rates.

A

Which of the following interest rates do large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans? A) Prime rate B) Discount rate C) Broker call loan rate D) Federal funds rate

A

Which of the following is considered to be the order of the stages in a business cycle? A) Expansion, peak, contraction, trough B) Peak, expansion, contraction, trough C) Contraction, trough, peak, expansion D) Trough, contraction, expansion, peak

A

A customer of a Financial Industry Regulatory Authority (FINRA) member firm buys securities on margin. The customer is expected to pay a rate of interest on the margin loan based on which of the following? A) The prime rate B) The broker call loan rate C) The federal funds rate D) The discount rate

B

A sudden increase in U.S. exports would most likely cause which of the following? A) No effect on the balance of trade B) The trade deficit to decrease, or surplus to increase C) Something, but the impact is unpredictable D) The trade surplus to decrease, or deficit to increase

B

A supply-side approach to fiscal policy will use all of these tools except A) decreasing tax rates on business entities. B) personal income tax rebates. C) providing tax credits to small business. D) decreasing government regulatory costs.

B

Deflationary periods are characterized by all of the following except A) coinciding with recessions. B) increased consumer demand. C) a decline in prices. D) rising unemployment.

B

GDP has been negative the prior three quarters. The economy is likely in a period of A) depression. B) recession. C) denial. D) stagflation.

B

GDP, industrial production, and unemployment are examples of A) leading indicators. B) coincident indicators. C) dragging indicators. D) lagging indicators.

B

In order to lower the rate of inflation, the Federal Reserve might take which of the following steps? A) Decrease the reserve requirement B) Sell federal debt C) Increase the prime rate D) Purchase federal debt

B

In regards to fiscal policy, which of these statements is correct? Fiscal policy is considered the most efficient means to solve short-term economic problems. Fiscal policy is not considered the most efficient means to solve short-term economic problems. Fiscal policy refers to governmental budget decisions enacted by the U.S. president and Congress. Fiscal policy refers to governmental budget decisions enacted by the U.S. president and the cabinet. A) II and IV B) II and III C) I and IV D) I and III

B

Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets? A) Factors outside the United States can impact our securities and trade markets, but the effects are always short term and thus impact our domestic economy very little. B) Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy. C) Factors outside the United States never have immediate impact on our securities and trade markets, but over time can impact our domestic economy. D) Factors outside the United States have little impact on our securities and trade markets and thus our domestic economy.

B

The Federal Reserve System's primary goals are maintaining maximum employment levels. maintaining an appropriate level of inflation. managing tax policies. managing the federal debt. A) II and III B) I and II C) I and III D) III and IV

B

The federal government could use which of the following to slow the economy? A) Raise the federal funds rate B) Raise taxes C) Increase government spending D) Buy Treasury securities from banks

B

When the Federal Reserve Board (FRB) wants to contract (tighten) the money supply, it will A) buy corporate securities from banks in the open market. B) sell Treasury securities to banks in the open market. C) buy Treasury securities from banks in the open market. D) sell corporate securities to banks in the open market.

B

Which of the following would likely be classified as a countercyclical industry? A) Home building B) Gold mining C) Auto manufacturing D) Food production

B

Which of these places the phases of the business cycle in the correct order? A) Peak, contraction, recovery, and prosperity B) Contraction, trough, expansion, and peak C) Trough, recovery, contraction, and prosperity D) Expansion, contraction, trough, and recovery

B

According to Keynesian theory, a government can stimulate the economy by taking which of the following steps? A) Increasing taxes and increasing government spending B) Lowering taxes and decreasing government spending C) Lowering taxes and increasing government spending D) Increasing taxes and decreasing government spending

C

According to the U.S. Commerce Department, the economy is in a depression when a decline in real output of goods and services lasts A) beyond 12 months (4 quarters). B) 6 months or more (2 quarters). C) 18 months or more (6 quarters). D) 9 months or more (3 quarters).

C

An economic indicator that tends to change direction prior to a change in the direction of GDP is A) a flagging indicator. B) a coincident indicator. C) a leading indicator. D) a lagging indicator.

C

Fiscal policy is the most efficient means for solving short-term economic issues. is not considered the most efficient means to solve short-term economic issues. is reflected in the budget decisions enacted by our president and Congress. is reflected in the money supply decisions enacted by the Federal Reserve Board (FRB). A) I and IV B) I and III C) II and IV D) II and III

C

Producers would generally report rising inventories during which period of the business cycle? A) Recovery B) Peak C) Contraction D) Expansion

C

Several months of slow economic growth and rising unemployment have characterized the economy. Market analysts would describe this as a period of A) deflation. B) stagflation. C) stagnation. D) inflation.

C

Stagnation in the economy can be associated with A) prolonged periods of healthy economic growth. B) plentiful employment opportunities. C) high unemployment. D) robust production.

C

The economic indicator that reflects activity of U.S. entities without regard to where the activity takes place is A) GDP. B) CPI. C) GNP. D) FUN.

C

The federal government could use which of the following to stimulate the economy? A) Buy Treasury securities from banks B) Raise the federal funds rate C) Increase government spending D) Raise taxes

C

The monetarist theory proposes which of the following? A) The federal government can impact the economy by raising and lowering the federal funds rate. B) The federal government impacts the economy through repurchase and reverse repurchase agreements. C) The Federal Reserve may impact the economy by raising and lowering the discount rate. D) The Federal Reserve has a major impact on the economy by raising and lowering taxes.

C

The part of the federal government that acts as an independent central bank in order to manage monetary policy is the A) Treasury Department. B) Department of the Interior. C) Federal Reserve. D) Comptroller of the Currency.

C

To contract or slow economic growth U.S. fiscal policy should be to A) cut taxes and government spending for programs and development. B) cut taxes and increase government spending for programs and development. C) raise taxes and cut government spending for programs and development. D) raise taxes and government spending for programs and development.

C

To expand the overall economy, the Federal Reserve Board (FRB), acting as agent for the U.S. Treasury department, will A) buy securities via open-market operations, pushing interest rates up. B) sell securities via open-market operations, pushing interest rates down. C) buy securities via open-market operations, pushing interest rates down. D) sell securities via open-market operations, pushing interest rates up.

C

Which of the following is not an activity of the Federal Reserve? A) Raising or lowering the discount rate B) Buying and selling government securities in the open market C) Raising or lowering the prime rate D) Raising or lowering the reserve requirement

C

Which of the following organizations engaging in open-market operations acts as agent for the U.S. Treasury Department? A) Securities Investors Protection Corporation (SIPC) B) U.S. Congress C) Federal Reserve Board (FRB) D) Securities and Exchange Commission (SEC)

C

Which of the following would increase the U.S. balance of payments deficit? A) An increase in exports of domestic goods from the U.S. B) A decrease in dividend payments by U.S. companies to foreign investors. C) A decrease in purchases of U.S. securities by foreign investors. D) A decrease in imports of foreign goods into the U.S.

C

You should expect which of these to occur when the dollar strengthens against other currencies? Imports will become less expensive. Inflation will go down. Inflation will rise. Imports will become more expensive. A) I and IV B) II and IV C) I and II D) I and III

C

Your client, Ann Porter, likes fast cars and has been saving for a high-end Italian sports car. She recently saw a report that said the dollar was likely to drop in the near future. She is concerned that this might affect her plans to buy her dream car next year. You tell her A) she should not waste her money on a fancy car. B) no, it should have no impact on her plans at all. C) yes, it will likely cost her more to buy the car if the dollar drops. D) yes, it will likely cost her less if the dollar drops.

C

A barometer of short-term interest rates and one that is therefore considered the most volatile interest rate in the U.S. economy is A) the prime rate. B) the discount rate. C) the broker call loan rate. D) the federal funds rate.

D

Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would best be described as A) growth. B) Keynesian. C) defensive. D) cyclical.

D

The nation has passed through very trying economic times. Many have lost jobs and are tapping into savings to maintain their lifestyles. The economy is not weakening and shows a few signs of growth, but the damage from the downturn is very visible. The nation is likely entering a period of A) deflation. B) disaster. C) trough. D) recovery.

D

When consumer prices are increasing at a steady but reasonable rate this is considered a healthy level of A) stagnation. B) wage increases. C) growth. D) inflation.

D

Which of the following is the least accurate statement if the U.S. balance of payments is currently running at a surplus? A) Exports are currently exceeding imports. B) The value of the U.S. dollar is currently down against other currencies. C) The balance of trade shows a credit. D) Fewer dollars are flowing into the United States than out of the United States.

D