投资学第7版TestBank答案17.docx

投资学第7版TestBank答案17.docx

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投资学第7版TestBank答案17

MultipleChoiceQuestions

1.Atopdownanalysisofafirmstartswith____________.

A）therelativevalueofthefirm

B）theabsolutevalueofthefirm

C）thedomesticeconomy

D）theglobaleconomy

E）theindustryoutlook

Answer:

DDifficulty:

Easy

2.Anexampleofahighlycyclicalindustryis________.

A）theautomobileindustry

B）thetobaccoindustry

C）thefoodindustry

D）AandB

E）BandC

Answer:

ADifficulty:

Easy

Rationale:

Consumerdurables,suchasautomobiles,arehighlycyclicalaspurchasescanbedelayeduntilgoodtimes.Necessities,low-ticketitems,andaddictiveproductsarepurchasedingoodtimesandbad.

3.Demand-sideeconomicsisconcernedwith_______.

A）governmentspendingandtaxlevels

B）monetarypolicy

C）fiscalpolicy

D）AandB

E）A,B,andC

Answer:

EDifficulty:

Easy

Rationale:

Demand-sideeconomicsisconcernedwithmonetaryandfiscalpolicy（governmentspendingandtaxing）.

4.Themostwidelyusedmonetarytoolis___________.

A）alteringthediscountrate

B）alteringthereserverequirements

C）openmarketoperations

D）alteringmarginaltaxrates

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

TheFederalReserve'sopenmarketoperationsarethemostwidelyusedandmosteffectivemonetarytoolforinfluencinginterestrates.

5.The"real",orinflation-adjusted,exchangerate,is

A）thebalanceoftrade.

B）thebudgetdeficit.

C）thepurchasingpowerratio.

D）unimportanttotheU.Seconomy.

E）noneoftheabove.

Answer:

CDifficulty:

Easy

Rationale:

Theratioofonecountry'spurchasingpowertoanother'siscalledthe"real",orinflationadjusted,exchangerate,andisanimportantmeasureoftherelativecostsofdomesticversusforeigngoods.

6.The"normal"rangeofprice-earningsratiosfortheS&P500Indexis

A）between2and10.

B）between5and15.

C）lessthan8.

D）between12and25

E）greaterthan20.

Answer:

DDifficulty:

Moderate

Rationale:

Stockpricescommonlytradeatbetween12and25timesearnings.

7.Monetarypolicyisdeterminedby

A）governmentbudgetdecisions.

B）presidentialmandates.

C）theboardofGovernorsoftheFederalReserveSystem.

D）congressionalactions.

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

TheBoardofGovernorsoftheFederalReserveSystemdeterminesmonetarypolicythroughopenmarketoperations,changesinthediscountrateandreserverequirementadjustments.

8.Atroughis________.

A）atransitionfromanexpansioninthebusinesscycletothestartofacontraction

B）atransitionfromacontractioninthebusinesscycletothestartofanexpansion

C）adepressionthatlastsmorethanthreeyears.

D）onlysomethingusedbyfarmerstofeedpigsandnotaninvestmentterm

E）noneoftheabove

Answer:

BDifficulty:

Easy

Rationale:

Thetroughoccurswhentheeconomyhashit"rockbottom"inthebusinesscycleandrecoveryisahead.

9.Apeakis________.

A）atransitionfromanexpansioninthebusinesscycletothestartofacontraction

B）atransitionfromacontractioninthebusinesscycletothestartofanexpansion

C）adepressionthatlastsmorethanthreeyears.

D）onlysomethingusedbyfarmerstofeedpigsandnotaninvestmentterm

E）noneoftheabove

Answer:

ADifficulty:

Easy

Rationale:

Thepeakoccurswhentheeconomyhashitthetopinthebusinesscycle.

10.Iftheeconomyisgrowing,firmswithhighoperatingleveragewillexperience__________.

A）higherincreasesinprofitsthanfirmswithlowoperatingleverage.

B）similarincreasesinprofitsasfirmswithlowoperatingleverage.

C）smallerincreasesinprofitsthanfirmswithlowoperatingleverage.

D）nochangeinprofits.

E）noneoftheabove.

Answer:

ADifficulty:

Easy

Rationale:

Assalesincrease,firmswithhighoperatingleveragespreadthesefixedcostsovermoreunitsandthusincreaseprofits.

11.Iftheeconomyisshrinking,firmswithhighoperatingleveragewillexperience__________.

A）higherdecreasesinprofitsthanfirmswithlowoperatingleverage.

B）similardecreasesinprofitsasfirmswithlowoperatingleverage.

C）smallerdecreasesinprofitsthanfirmswithlowoperatingleverage.

D）nochangeinprofits.

E）noneoftheabove.

Answer:

ADifficulty:

Easy

Rationale:

Assalesdecrease,firmswithhighoperatingleveragespreadthesefixedcostsoverfewerunitsandthusdecreaseprofits.

12.Iftheeconomyisgrowing,firmswithlowoperatingleveragewillexperience__________.

A）higherincreasesinprofitsthanfirmswithhighoperatingleverage.

B）similarincreasesinprofitsasfirmswithhighoperatingleverage.

C）smallerincreasesinprofitsthanfirmswithhighoperatingleverage.

D）nochangeinprofits.

E）noneoftheabove.

Answer:

CDifficulty:

Easy

Rationale:

Assalesincrease,firmswithhighoperatingleveragespreadthesefixedcostsovermoreunitsandthusincreaseprofits.

13.Iftheeconomyisshrinking,firmswithlowoperatingleveragewillexperience__________.

A）higherdecreasesinprofitsthanfirmswithhighoperatingleverage.

B）similardecreasesinprofitsasfirmswithhighoperatingleverage.

C）smallerdecreasesinprofitsthanfirmswithhighoperatingleverage.

D）nochangeinprofits.

E）noneoftheabove.

Answer:

CDifficulty:

Easy

Rationale:

Assalesdecrease,firmswithhighoperatingleveragespreadthesefixedcostsoverfewerunitsandthusdecreaseprofits.

14.GDPrefersto_________.

A）theamountofpersonaldisposableincomeintheeconomy.

B）thedifferencebetweengovernmentspendingandgovernmentrevenues.

C）thetotalmanufacturingoutputintheeconomy.

D）thetotalproductionofgoodsandservicesintheeconomy

E）noneoftheabove

Answer:

DDifficulty:

Easy

Rationale:

GDPisameasureoftheproductiveoutputofthecountry,bothintermsofgoodsandservices.

15.Theaveragedurationofunemploymentandchangesintheconsumerpriceindexforservicesare_________.

A）leadingeconomicindicators

B）coincidentaleconomicindicators

C）laggingeconomicindicators

D）compositeeconomicindicators

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

Theseindicators（C）lagthegeneraleconomy,andareindicatorsthattheeconomyisabouttochangedirections.

16.Afirminanindustrythatisverysensitivetothebusinesscyclewilllikelyhaveastockbeta___________.

A）greaterthan1.0

B）equalto1.0

C）lessthan1.0butgreaterthan0.0

D）equaltoorlessthan0.0

E）Thereisnorelationshipbetweenbetaandsensitivitytothebusinesscycle.

Answer:

ADifficulty:

Moderate

Rationale:

Cyclicalstocksaremorevolatilethanthemarketingeneral,andthushavebetasgreaterthan1.0.

17.Iftheeconomyweregoingintoarecession,anattractiveindustrytoinvestinwouldbethe________industry.

A）automobile

B）medicalservices

C）construction

D）AandC

E）BandC

Answer:

BDifficulty:

Easy

Rationale:

Medicalservicesarenecessities,andthusperformaboutthesameregardlessofthebusinesscycle.Automobileandconstructionindustriesarecyclical,andperformpoorlyduringrecessions.

18.Thestockpriceindexandcontractsandnewordersfornondefensecapitalgoodsare

A）leadingeconomicindicators.

B）coincidentaleconomicindicators.

C）laggingeconomicindicators.

D）notusefulaseconomicindicators.

E）noneoftheabove.

Answer:

ADifficulty:

Moderate

Rationale:

Contractsandordersforplantandequipmentareindicativeoffutureeconomictimes,andthusareleadingeconomicindicators.Thestockpriceindexisoneofthebestleadingeconomicindicators,areflectionofmarketefficiency.

19.Afirmintheearlystagesoftheindustrylifecyclewilllikelyhave________.

A）highmarketpenetration.

B）highrisk.

C）rapidgrowth

D）AandC

E）BandC

Answer:

EDifficulty:

Easy

Rationale:

Intheearlystagesoftheindustrylifecycle,thefirmislikelytobehighinrisk.

20.AssumetheU.S.governmentwastodecidetoincreasethebudgetdeficit.Thisactionwillmostlikelycause__________toincrease

A）interestrates

B）governmentborrowing

C）unemployment

D）bothAandB

E）noneoftheabove

Answer:

DDifficulty:

Easy

Rationale:

Increasingthedeficitraisesgovernmentborrowing,increasesthedemandforfundsandthusincreasestheinterestrates.Deficitspendingisalsousedtostimulatetheeconomybyencouragingincreasingtheoutputofeconomy.

21.AssumetheU.S.governmentwastodecidetodecreasethebudgetdeficit.Thisactionwillmostlikelycause__________todecrease

A）interestrates

B）governmentborrowing

C）unemployment

D）bothAandB

E）noneoftheabove

Answer:

DDifficulty:

Easy

Rationale:

decreasingthedeficitlowersgovernmentborrowing,decreasesthedemandforfundsandthusdecreasestheinterestrates.

22.AssumethattheFederalReservedecreasesthemoneysupply.Thisactionwillcause________todecrease.

A）interestrates

B）theunemploymentrate

C）investmentintheeconomy

D）tradebalance

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

Decreasingthemoneysupplyisaneconomiccontractionstrategy,resultinginadecreasedoutputoftheeconomy.

23.Ifthecurrencyofyourcountryisdepreciating,theresultshouldbeto______exportsandto_______imports.

A）stimulate,stimulate

B）stimulate,discourage

C）discourage,stimulate

D）discourage,discourage

E）notaffect,notaffect

Answer:

BDifficulty:

Moderate