Ultimate Unit 9 Review

Which of the following would increase the U.S. balance of payments deficit?

A decrease in purchase of U.S. securities by foreign investors

Depression

A severe downturn lasting for six quarters (18 months) or more

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)?

$75 million

A sever downturn lasting for 2 quarters (6 months) or more

Being in a recession

The economy appears to be entering a period of contraction. Which of the following companies will likely do best if the economy enters a period of decline? A) Tiny Cars, Inc. B) Fontana Steel Mills, Corp. C) Daisy Dairy Company D) Old Bess Steel, Inc.

Daisy Dairy Company (Defensive industry because it is food, and will likely maintain sales during the downturn)

Which of the following points to a general decline in prices occurring during severe recessions and the unemployment rate is rising.

Deflation

Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets?

Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy

The part of the federal government that acts as an independent central bank in order to manage monetary policy is the

Federal Reserve

The Federal Reserve pursues its dual mandate through

Monetary policy

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

Stagflation

When the economy shows high unemployment and is failing to expand as measured by a lack of consumer demand and business activity, but prices for goods and services are still rising, this could be described as what?

Stagflation

An extended period of little or no growth in GDP, wages, and prices is a period of

Stagnation

Which of the following has the greatest influence on the money supply within the United States?

The Federal Open Market Committee (FOMC)

The best characterization of how economists view the money supply is

cash, loans, different forms of credit, and other liquid instruments.

If consumer prices are steadily dropping from month to month, this is known as what?

deflation

A company very concerned about liquidity would want

high current ratio

Coincident indicators

move along with economic activity

Stagflation

occurs when prices are rising but the economy is not expanding.

Tools available to the Federal Reserve Board (FRB) include

open-market operations, setting the discount rate, and setting reserve requirements

Stagnation is when the economy experiences

prolonged periods of slow or little economic growth, accompanied by high unemployment

The Federal Reserve Bank is raising interest rates, this will

push bond prices lower in the open market

To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board (FRB) can

raise the discount rate

The Federal Reserve Board (FRB) can have an impact on the money supply utilizing all of the following except A) buying and selling government securities in the open market. B) raising or lowering the discount rate. C) raising or lowering the reserve requirement. D) raising or lowering the prime rate.

raising or lowering the prime rate.

GDP has been negative the prior three quarters. The economy is likely in a period of

recession

To decrease economic activity, the Federal Reserve will

sell T-bills

Tighter credit will

slow economic expansion, preventing inflation

Economic reports show that there is a general rise in prices for consumer goods and a high unemployment rate occurring simultaneously. This combination can best be described as

stagflation

When a broker-dealer borrows money to fund margin purchases, the rate for this loan is called

the Broker call loan rate

The most common way of measuring purchasing power risk is

the CPI

It is generally agreed upon that the most volatile interest rate in the U.S. economy is

the Federal Funds rate

According to Keynes, a government's fiscal policies determine

the country's economic health.

A barometer of short-term interest rates and one that is therefore considered the most volatile interest rate in the U.S. economy is

the federal funds rate

Expansion (recovery) is considered to be the beginning of the business cycle, followed by

the peak (prosperity), contraction (decline), and trough

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 another member bank and pay the federal funds rate

Where on a balance sheet would you find the estimated value of a retail company's inventory?

Current assets

What is the formula for calculating working capital?

Current assets - current liabilities

ABC Corporation's earnings remained steady while its shares outstanding increased by 5%. How does this impact ABC's earnings per share (EPS)?

EPS has decreased

EBITDA is an acronym referring to

Earnings, before interest, taxes, depreciation, and amortization

Inflation is most closely associated with which phase of the business cycle?

Expansion

Which of the following is considered to be the order of the stages in a business cycle?

Expansion, peak, contraction, trough

Which of the following organizations engaging in open-market operations acts as agent for the U.S. Treasury Department?

FRB

ABC and MNO both have the same market price and shares outstanding for their common stock. If ABC's price-to-earnings ratio is higher, that would indicate

ABC's net income is less than MNO's

Stagnation

An extended period of little or no growth period

Which of the following is used to calculate a company's net worth?

Assets - liabilities

Which of the following correctly states the impact of open-market operations taken by the Federal Reserve Board (FRB)?

By buying securities, the FRB puts money into the banking system, expanding the money supply and reducing interest rates

M1 is a measure of the value of

Cash and funds held in DDAs (demand deposit accounts)

M1 is a measure of which of the following?

Cash and funds in demand deposit accounts

Producers would generally report rising inventories during which period of the business cycle?

Contraction

Reports of rising inventories generally occur during which period of the business cycle?

Contraction

Which of these places the phases of the business cycle in the correct order?

Contraction, trough, expansion, and peak

A gold mining company is probably an example of what industry?

Counter-cyclical

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

Debt ratio

Longer, more severe contractions are

Depressions

Which of the following interest rates is set by the FRB?

Discount rate

Which of the following benchmark interest rates is considered a barometer of the direction of short-term interest rates?

Federal funds rate

Which of the following is not a tool of the Federal Reserve? A) FOMC activities B) Regulation T margin requirements C) Discount rate D) Federal funds rate

Federal funds rate

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

Fewer dollars are flowing into the United States than out of the United States.

In regards to fiscal policy, which of these statements is correct?

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 President and Congress

The most commonly referenced indicator of economic activity is

GDP

The economic indicator that reflects activity of U.S. entities without regard to where the activity takes place is

GNP

Which of the following would likely be classified as a countercyclical industry?

Gold mining

A measure of a nation's citizen's economic activity is

Gross national product

In what order do the following economic phases typically occur? I. Recovery II. Trough III. Decline IV. Prosperity

I. IV, III, II

A surplus in the U.S. balance of payments can occur if I. interest rates in foreign countries are higher than U.S. domestic rates. II. interest rates in foreign countries are lower than U.S. domestic rates. III. U.S. consumers are purchasing (importing) foreign goods. IV. foreign consumers are purchasing (importing) U.S. goods.

II and IV

You should expect which of these to occur when the dollar strengthens against other currencies?

Imports will become less expensive & inflation will go down

Which of the following is a lagging indicator?

Increase in the consumer loans to personal income ratio

CPI is a measure of

Inflation

The cost of doing business is closely linked to the cost of money, which is known as

Interest

A surplus in the U.S. balance of payments can occur if

Interest rates in foreign countries are lower than U.S. domestic rates & foreign consumers are purchasing (importing) U.S. goods

Match the following statement to the best term: Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.

Keynesian Theory

Which of the following is another term for demand-side theory?

Keynesian theory

An analyst is trying to determine upcoming economic activity to better determine her recommended investment strategy. She would be most interested in

Leading indicators

When the Federal Open Market Committee (FOMC) directs that Treasury securities be purchased in the open market, this will do which of the following?

Lower interest rates on loans to consumers

Demand-side economics call on the federal government to do which of the following to encourage economic activity?

Lower personal income tax rates

In order to accelerate growth in a slowing economy, demand-side theory would suggest which of the following steps?

Lower taxes

According to Keynesian theory, a government can stimulate the economy by taking which of the following steps?

Lowering taxes and increasing government spending

Which of these does M2 measure? I. M1 II. M3 III. Term repos and jumbo CDs IV. Retail CDs and money markets

M1 & Term repos and jumbo CDs

Currency held by the public, including checking accounts and time deposits less than $100,000, and money market mutual funds would best be described by economists as

M2

For those who follow monetary theory, which is the most complete measure of the money supply?

M3

Large time deposits of more than $100,000 are considered to be found in what part of the money supply?

M3

According to economists which of the following is the correct characterization of the money supply?

M3 includes all of M1 and M2

The Federal Reserve's dual mandate includes which of these?

Maintaining maximum employment & price stability

Which of the following is an example of a company in a defensive industry?

Major Mills Grain Company, a grain and cereal producer

Which of the following can encourage economic growth because gradually increasing prices tend to stimulate business investment?

Mild inflation

Different degrees of inflation can impact the economy differently. Which of the following best reflects this?

Mild inflation can encourage growth and stimulate the economy.

Which of the following regarding monetary or fiscal policy is true?

Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply

The actions taken by the Federal Reserve to manage the economy are based on which of the following economic theories?

Monetary theory

Which of the following is a leading indicator?

New orders for consumers goods

The Federal Reserve is concerned that the economy is slowing. With this in mind, which of these actions would the Federal Reserve most likely engage in?

Open market purchases of T-bills

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

Raising or lowering the prime rate

Economists call mild, short-term contractions

Recessions

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

Recovery

In order to lower the rate of inflation, the Federal Reserve might take which of the following steps?

Sell federal debt

Occasionally our economy experiences an unusual combination of rising prices and high unemployment. Economists have given this unusual pairing what name?

Stagflation

Several months of slow economic growth and rising unemployment have characterized the economy. Market analysts would describe this as a period of

Stagnation

Match the following statement to the best expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.

Supply side Economic Theory

Which of the following theories postulates that market forces should be allowed to freely determine the price of goods with minimal government intervention?

Supply-side theory

A weak U.S. dollar leads to more

U.S. exports and a balance of payments surplus

Fiscal policy seeks to encourage or discourage economic activity through the

Use of government spending and taxation

Which of the following is a true statement with regard to either U.S. securities laws or the description of international economic factors?

When the U.S. dollar is strong, foreign currency buys fewer U.S. goods.

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

Yes, it will likely cost her more to buy the car if the dollar drops

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

a decrease in purchases of U.S. securities by foreign investors.

Numbers measuring the output of goods and services have been declining for just under one year. The economy would be characterized as

being in a recession

When the Federal Reserve Board (FRB) wants to expand (loosen) the money supply, it will

buy Treasury securities from banks in the open market

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

changes in durable goods inventories (this is a leading economic indicator)

ABC Corporation raised capital through an offering of equity securities. Which component of the balance sheet has changed as a result?

current assets

Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would best be described as

cyclical

The business cycle is best characterized as

expansion, peak, contraction, trough

Lagging indicators

follow economic activity

The country's annual economic output of all of the goods and services produced within the nation, is known as

gross domestic product

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

growth company

When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will do which of the following?

increase interest rates on loans to consumers

An expansion in the business cycle would be characterized by

increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values

When consumer prices are increasing at a steady but reasonable rate this is considered a healthy level of

inflation

When the money supply in the economy increases,

interest rates go down, hence borrowing and spending for consumers is easier

When the money supply in the economy decreases,

interest rates go up, hence borrowing and spending for consumers is more difficult

Fiscal policy

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

Monetary theory

is the theory that guides the Federal Reserve in management of the money supply

An economic indicator that tends to change direction following a change in the direction of GDP is a

lagging indicator

The prime rate is the rate that

large U.S. commercial banks charge their most creditworthy corporate customers for unsecured loans. It is not a tool that the FRB can utilize to ease or tighten the money supply.

To ease its monetary policy, allowing consumers to borrow more easily, the Federal Reserve Board (FRB) can

lower the discount rate

To prevent inflation by tightening the availability of credit, the Federal Reserve Board (FRB) would do any of the following except A) lower the prime rate. B) raise the discount rate. C) sell U.S. government securities in open-market operations. D) raise the reserve requirement.

lower the prime rate

Basic demand-side (Keynesian theory) would stimulate the economy by

lowering taxes and increasing government spending

Under the dual mandate, the Federal Reserve is most concerned with achieving

maximum employment and controlling inflation

M3 includes all of M1 and M2, plus time deposits of

more than $100,000 and repurchase agreements with terms longer than one day. In this light, M3 is that measure of the money supply that is the most inclusive.

The fed funds rate is set by

the bank making the loan