Economic Concepts & Corporate government, Internal Control & ERM Flashcards
A major problem arising from the use of fiscal policy to help stimulate an economy is that there
A. Are too few fiscal goals that have wide public support.
B. Is a balanced budget that promotes cyclical fluctuations.
C. May be an expansionary and, therefore, inflationary bias to such policies.
D. Is too short a lag between recognizing an economic problem and implementing a cure.
C. May be an expansionary and, therefore, inflationary bias to such policies.
An increase in government spending or a tax reduction to stimulate the economy will increase the amount of money available for spending and will lead to increased demand for goods and services. If the increased demand is not offset by increased productivity, the fiscal policy will have an inflationary effect.
A company is evaluating its experience with five recent investments. The following data are available:
Rank the investments in order from highest rate of return to lowest.
A. B, E, D, C, A.
B. A, C, E, D, B.
C. B, D, E, C, A.
D. C, E, A, D, B.
C. B, D, E, C, A.
Rate of return is equal to the return on an investment (the amount received minus the amount invested) divided by the amount invested. The calculation for these five investments can be performed as follows:
A lender and a borrower signed a contract for a $1,000 loan for 1 year. The lender asked the borrower to pay 3% interest. Inflation occurred and prices rose by 2% over the next year. The borrower repaid $1,030. What is the amount worth in real terms, after inflation?
A. $1,060.90
B. $1,009.80
C. $1,050.60
D. $1,019.80
B. $1,009.80
The amount repaid in nominal terms at the end of the year is $1,030.00 ($1,000 × 1.03). To convert this amount to real terms, that is, to state it in terms of its actual buying power, it must be adjusted for inflation ($1,030.00 ÷ 1.02 = $1,009.80).
In any competitive market, an increase in both demand and supply can be expected to always
A. Decrease both price and market-clearing quantity.
B. Increase price.
C. Increase both price and market-clearing quantity.
D. Increase market-clearing quantity.
D. Increase market-clearing quantity.
In a competitive market, equilibrium exists when demand is exactly equal to supply. If both demand and supply increase in equal amounts, the market will still be in equilibrium, but the new price may be higher, lower, or unchanged depending upon the slopes of the demand and supply curves. Whatever the new price, the quantity of products cleared by the market should increase.
Velocity of money is….
The ratio of nominal gross domestic product (NDP) to the money supply
Fact Pattern: The table below concerns the money supply for the economy of the hypothetical country of Petasus.
The size of Petasus’ M1 money supply is
A. $2,400 billion
B. $2,460 billion
C. $2,960 billion
D. $3,010 billion
B. $2,460 billion
M1 and M2 are the most common measures of the money supply. M1, or the narrow money stock, includes coins, currency, and checking deposits. Thus, M1 equals $2,460 billion ($2,400 billion + $60 billion).
A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is
A. Learning curve analysis.
B. Expected value analysis.
C. Sensitivity analysis.
D. Regression analysis.
C. Sensitivity analysis.
After a problem has been formulated into any mathematical model, it may be subjected to sensitivity analysis. Sensitivity analysis examines how the model’s outcomes change as the parameters change.
Country 1 exports goods to Country 2. Which of the following is not an effect that Country 1 might experience if Country 2 imposes import quotas, tariffs, and other forms of protectionism?
A. The benefit of subsidies to producers in Country 1 decreases.
B. Country 1 can no longer sell products below cost in Country 2.
C. Consumers in Country 1 pay higher prices and consume fewer goods.
D. Country 1 manufactures a portion of its product in Country 2.
C. Consumers in Country 1 pay higher prices and consume fewer goods.
Domestic consumers of foreign goods in Country 2 pay higher prices and consume fewer goods after Country 2 imposes import quotas, tariffs, and other forms of protectionism.
The argument in favor of minimum wage laws is that they
A. Improve the economic status of some workers.
B. Can raise wages above the equilibrium level.
C. Cause some people to lose their jobs.
D. Reduce employment.
A. Improve the economic status of some workers.
Arguments against minimum wage laws are that wages are raised above equilibrium levels and therefore reduce employment. Thus, some people lose their jobs. An argument in favor of such laws is that workers who keep their jobs improve their living standards. Another argument on behalf of minimum wage laws is that labor productivity may increase because employers will use workers more efficiently and workers will be more motivated.
The difference between the required rate of return on a given risky investment and that on a riskless investment with the same expected return is the
A. Beta coefficient.
B. Risk premium.
C. Coefficient of variation.
D. Standard deviation.
B. Risk premium.
The required rate of return on equity capital in the capital asset pricing model is the risk-free rate (determined by government securities) plus the product of the market risk premium times the beta coefficient (beta measures the firm’s risk). The market risk premium is the amount above the risk-free rate that will induce investment in the market. The beta coefficient of an individual stock is the correlation between the volatility (price variation) of the stock market and that of the price of the individual stock.
Which tool would most likely be used to determine the best course of action under conditions of uncertainty?
A. Scattergraph method.
B. Program evaluation and review technique (PERT).
C. Cost-volume-profit analysis.
D. Expected value (EV).
D. Expected value (EV).
Expected value analysis provides a rational means for selecting the best alternative in decisions involving risk. The expected value of an alternative is found by multiplying the probability of each outcome by its payoff and summing the products. It represents the long-term average payoff for repeated trials.
