投资学第7版TestBank答案17.docx

1、投资学第7版TestBank答案17Multiple Choice Questions 1. A top down analysis of a firm starts with _. A) the relative value of the firm B) the absolute value of the firm C) the domestic economy D) the global economy E) the industry outlook Answer: D Difficulty: Easy 2. An example of a highly cyclical industry

2、 is _. A) the automobile industry B) the tobacco industry C) the food industry D) A and B E) B and C Answer: A Difficulty: Easy Rationale: Consumer durables, such as automobiles, are highly cyclical as purchases can be delayed until good times. Necessities, low-ticket items, and addictive products a

3、re purchased in good times and bad. 3. Demand-side economics is concerned with _. A) government spending and tax levels B) monetary policy C) fiscal policy D) A and B E) A, B, and C Answer: E Difficulty: Easy Rationale: Demand-side economics is concerned with monetary and fiscal policy (government s

4、pending and taxing). 4. The most widely used monetary tool is _. A) altering the discount rate B) altering the reserve requirements C) open market operations D) altering marginal tax rates E) none of the above Answer: C Difficulty: Easy Rationale: The Federal Reserves open market operations are the

5、most widely used and most effective monetary tool for influencing interest rates. 5. The real, or inflation-adjusted, exchange rate, is A) the balance of trade. B) the budget deficit. C) the purchasing power ratio. D) unimportant to the U. S economy. E) none of the above. Answer: C Difficulty: Easy

6、Rationale: The ratio of one countrys purchasing power to anothers is called the real, or inflation adjusted, exchange rate, and is an important measure of the relative costs of domestic versus foreign goods. 6. The normal range of price-earnings ratios for the S&P500 Index is A) between 2 and 10. B)

7、 between 5 and 15. C) less than 8. D) between 12 and 25 E) greater than 20. Answer: D Difficulty: Moderate Rationale: Stock prices commonly trade at between 12 and 25 times earnings. 7. Monetary policy is determined by A) government budget decisions. B) presidential mandates. C) the board of Governo

8、rs of the Federal Reserve System. D) congressional actions. E) none of the above Answer: C Difficulty: Easy Rationale: The Board of Governors of the Federal Reserve System determines monetary policy through open market operations, changes in the discount rate and reserve requirement adjustments. 8.

9、A trough is _. A) a transition from an expansion in the business cycle to the start of a contraction B) a transition from a contraction in the business cycle to the start of an expansion C) a depression that lasts more than three years. D) only something used by farmers to feed pigs and not an inves

10、tment term E) none of the above Answer: B Difficulty: Easy Rationale: The trough occurs when the economy has hit rock bottom in the business cycle and recovery is ahead. 9. A peak is _. A) a transition from an expansion in the business cycle to the start of a contraction B) a transition from a contr

11、action in the business cycle to the start of an expansion C) a depression that lasts more than three years. D) only something used by farmers to feed pigs and not an investment term E) none of the above Answer: A Difficulty: Easy Rationale: The peak occurs when the economy has hit the top in the bus

12、iness cycle. 10. If the economy is growing, firms with high operating leverage will experience _. A) higher increases in profits than firms with low operating leverage. B) similar increases in profits as firms with low operating leverage. C) smaller increases in profits than firms with low operating

13、 leverage. D) no change in profits. E) none of the above. Answer: A Difficulty: Easy Rationale: As sales increase, firms with high operating leverage spread these fixed costs over more units and thus increase profits. 11. If the economy is shrinking, firms with high operating leverage will experienc

14、e _. A) higher decreases in profits than firms with low operating leverage. B) similar decreases in profits as firms with low operating leverage. C) smaller decreases in profits than firms with low operating leverage. D) no change in profits. E) none of the above. Answer: A Difficulty: Easy Rational

15、e: As sales decrease, firms with high operating leverage spread these fixed costs over fewer units and thus decrease profits. 12. If the economy is growing, firms with low operating leverage will experience _. A) higher increases in profits than firms with high operating leverage. B) similar increas

16、es in profits as firms with high operating leverage. C) smaller increases in profits than firms with high operating leverage. D) no change in profits. E) none of the above. Answer: C Difficulty: Easy Rationale: As sales increase, firms with high operating leverage spread these fixed costs over more

17、units and thus increase profits. 13. If the economy is shrinking, firms with low operating leverage will experience _. A) higher decreases in profits than firms with high operating leverage. B) similar decreases in profits as firms with high operating leverage. C) smaller decreases in profits than f

18、irms with high operating leverage. D) no change in profits. E) none of the above. Answer: C Difficulty: Easy Rationale: As sales decrease, firms with high operating leverage spread these fixed costs over fewer units and thus decrease profits. 14. GDP refers to _. A) the amount of personal disposable

19、 income in the economy. B) the difference between government spending and government revenues. C) the total manufacturing output in the economy. D) the total production of goods and services in the economy E) none of the above Answer: D Difficulty: Easy Rationale: GDP is a measure of the productive

20、output of the country, both in terms of goods and services. 15. The average duration of unemployment and changes in the consumer price index for services are_. A) leading economic indicators B) coincidental economic indicators C) lagging economic indicators D) composite economic indicators E) none o

21、f the above Answer: C Difficulty: Moderate Rationale: These indicators (C) lag the general economy, and are indicators that the economy is about to change directions. 16. A firm in an industry that is very sensitive to the business cycle will likely have a stock beta _. A) greater than 1.0 B) equal

22、to 1.0 C) less than 1.0 but greater than 0.0 D) equal to or less than 0.0 E) There is no relationship between beta and sensitivity to the business cycle. Answer: A Difficulty: Moderate Rationale: Cyclical stocks are more volatile than the market in general, and thus have betas greater than 1.0. 17.

23、If the economy were going into a recession, an attractive industry to invest in would be the _ industry. A) automobile B) medical services C) construction D) A and C E) B and C Answer: B Difficulty: Easy Rationale: Medical services are necessities, and thus perform about the same regardless of the b

24、usiness cycle. Automobile and construction industries are cyclical, and perform poorly during recessions. 18. The stock price index and contracts and new orders for nondefense capital goods are A) leading economic indicators. B) coincidental economic indicators. C) lagging economic indicators. D) no

25、t useful as economic indicators. E) none of the above. Answer: A Difficulty: Moderate Rationale: Contracts and orders for plant and equipment are indicative of future economic times, and thus are leading economic indicators. The stock price index is one of the best leading economic indicators, a ref

26、lection of market efficiency. 19. A firm in the early stages of the industry life cycle will likely have _. A) high market penetration. B) high risk. C) rapid growth D) A and C E) B and C Answer: E Difficulty: Easy Rationale: In the early stages of the industry life cycle, the firm is likely to be h

27、igh in risk. 20. Assume the U. S. government was to decide to increase the budget deficit. This action will most likely cause _ to increase A) interest rates B) government borrowing C) unemployment D) both A and B E) none of the above Answer: D Difficulty: Easy Rationale: Increasing the deficit rais

28、es government borrowing, increases the demand for funds and thus increases the interest rates. Deficit spending is also used to stimulate the economy by encouraging increasing the output of economy. 21. Assume the U. S. government was to decide to decrease the budget deficit. This action will most l

29、ikely cause _ to decrease A) interest rates B) government borrowing C) unemployment D) both A and B E) none of the above Answer: D Difficulty: Easy Rationale: decreasing the deficit lowers government borrowing, decreases the demand for funds and thus decreases the interest rates. 22. Assume that the

30、 Federal Reserve decreases the money supply. This action will cause _ to decrease. A) interest rates B) the unemployment rate C) investment in the economy D) trade balance E) none of the above Answer: C Difficulty: Easy Rationale: Decreasing the money supply is an economic contraction strategy, resu

31、lting in a decreased output of the economy. 23. If the currency of your country is depreciating, the result should be to _ exports and to _ imports. A) stimulate, stimulate B) stimulate, discourage C) discourage, stimulate D) discourage, discourage E) not affect, not affect Answer: B Difficulty: Moderate