Macroeconomics Test

Question 1

What is a Sole Proprietorship?

Answer 1

Business owned and operated by one person

Question 2

Advantages and Disadvantages of a sole proprietorship

Answer 2

Advantages:
- Be their own bosses
- Keep their financial affairs, business dealings, and production processes confidential
- Requires municipal license or provincial vendor’s permit
Disadvantages:
- Unlimited personal liability(personal assets can be seized for debts)
- Nobody else to rely on to run the business or raise needed funds
- Difficult and expensive to obtain business loans
- Potential for higher income tax due to progressive tax rates

Question 3

What is a Partnership?

Answer 3

A firm owned by two or more people bound by the terms of a legal document known as a partnership agreement

Question 4

What is a general and limited partnership?

Answer 4

General Partnership: All partners have unlimited personal liability for business loans and participate in management.
Limited Partnership: Includes limited partners and at least one general partner. They do not manage the business, and are only liable up to their investment.

Question 5

Advantages and Disadvantages of a partnership

Answer 5

Advantages:
- Pooling of talent and capital, high personal motivation, and relatively few legal expenses and restriction
- Shared risks and profits which can be appealing to those not wanting to operate alone.
- Attracts more capital because it pools the funds of multiple people
- Easier to obtain credit and to borrow money because more people are responsible for repayment
Disadvantages:
- General partners have unlimited personal liability, with personal assets at risk
- Difficulty in transferring ownership; often requires consent from other partners
- Progressive personal income tax, so the percentage of tax they pay increases as their revenue goes up.
- Potential for management disputes and personality conflicts
- A partnership legal termination triggers include death, incapacity, insolvency, or breach of partnership agreement

Question 6

What is a Corporation?

Answer 6

A legal entity that is separate and distinct from its owners

Question 7

Private vs Public Corporation

Answer 7

Private: Shares are privately traded
Public: Shares can be freely traded

Question 8

Common vs Preferred Shares

Answer 8

Common: Provide a shareholder with voting rights
Preferred: Gives a shareholder a preferential position in regard to profits and assets but does not provide voting rights

Question 9

Advantages and Disadvantages of a Corporation

Answer 9

Advantages:
- Profit distribution: Shareholders may reinvest profits for future growth, making corporations potentially self-financing
- Legal rights: Can sue, be sued, and own property
- Limited liability: Shareholders are only at risk for the investment; personal assets are protected
- Investment attraction: Attracts more investors due to limited liability and potential for large-scale operations
Longevity: Corporations have more longevity since they do not dissolve if a partner dies or decides to leave as the shares can be easily transferred to others
- Tax benefits: Generally lower corporate income tax rate; dividends taxed favorably
Disadvantages:
- Costly establishment: High legal and government fees
- Regulation: Subject to intense regulation, including mandatory public disclosures that can expose sensitive info to competition
- Management: Managed by professionals rather than owners, which can dilute personal incentive and loyalty.

Question 10

What is a co-operative?

Answer 10

Businesses owned equally by their members who share a common relationship or economic goal

Question 11

Advantages and Disadvantages of a co-operative

Answer 11

Advantages:
- Equal Management: Each member has an equal voice in management decisions
- Stability: Not affected by the death, insolvency, or incapacity of individual members.
- Economic benefits: Members can obtain goods or services at favorable rates or sell products at better prices.
- Limited liability: Members have limited personal liability for co-operative debts
- Profit distribution: Profits not reinvested are returned to members as patronage based on their transactions.
Disadvantages:
- Decision Making Challenges: Diverse member opinions can complicate decision-making.
- Management Involvement: The voluntary, and unpaid, nature of the officers’ positions may discourage some capable people from offering their management expertise to the group
- Captial Rasing Limits: Can only raise investment funds from within its membership, limiting capital growth.
Business Scope: Restricted to dealing with members, limiting customer base and business volume.

Question 12

What are government enterprises?

Answer 12

Government enterprises are owned by the federal, provincial, or municipal government

Question 13

Reasons for the Establishment of Government Enterprises

Answer 13

Competition: To introduce competition in monopolized industries
Control: Prevent roral private control of essential industries
Employment: Increase employment and standardize services

Question 14

What is GDP?

Answer 14

Gross Domestic Product(GDP) is often defined as “the total spending on all final-user goods and services produced domestically during a period.”

Question 15

What is not included in GDP?`

Answer 15

• Government social security and welfare payments
• Current exchanges in stock and bonds
• Changes in the value of financial assets
• Transactions involving assets produced in previous periods
• Economic activities that do not pass through the regular market

Question 16

How is GDP calculated using the expenditure approach?
Provide the equation and explain all its component parts fully and in detail.

Answer 16

Y = C+ I +G + (X-M)
C = Consumption by households on goods and services with the exception of purchases of new housing
I= Investments, which is on capital equipment, inventories and structures, including household purchases of new housing
G= Government Purchases. Spending on goods and services by local, provincial, and federal governments.
X-M= Net exports. Spending on domestically produced goods by foreigners(exports) minus spending on foreign goods by domestic residents(imports)

Question 17

Fundamental vs Quantitative Analysis

Answer 17

Fundamental:
- Involves deep analysis of a company’s business, management, and market opportunities
- Look at the transparency reports
- Look at economic sectors and rely on the investment manager’s expertise to select stocks and bonds based on company fundamentals.
- Gives you an advantage in a volatile market.
Quantitative:
- Employs data-driven models to evaluate stocks
- Statistical analysis of the economy, economic sector, geographic sector, company stock
- Utilizes factors identified by research to construct portfolios with desirable characteristics
- Doesn’t take into account humaine factors
- Good for stable economies, not volatile.

Question 18

What is Transparency?

Answer 18

The extent to which necessary financial information is readily available to investors and consumers.

Question 19

What are the 5 financial statements required by SEC?

Answer 19

Income statement: Shows Profit, loss, expense and net income
Balance Sheet: Details a corporation’s assets, liabilities, and stockholders equity
Cash Flow Statement: Tracks Cash inflows and outflows, investing and financing activities
Statement of stockholders’ equity: Records changes in shareholders’ equity
Statement of Comprehensive Income: Includes various types of income like foreign exchange gains or losses.

Question 20

Common vs Preferred stock

Answer 20

Common:
- Shares that receive a vote at the annual shareholders’ meeting
- Receives only dividends that are left over after preferred stock has received its dividends
Preferred:
- Do not receive a vote at the annual shareholders’ meeting
- Receives dividends before the common stock has received its dividends

Question 21

Bull vs Bear Market

Answer 21

Bull market: Means the market is doing well
Purchasing stock
Holding on to the stocks they own
Bear market: Means the market is doing poorly
Not Purchasing Stocks
Selling the stocks they own

Question 22

What is short selling?

Answer 22

The seller borrows a security, sells it, and plans to repurchase it at a lower price.

Question 23

What are the four types of unemployment?

Answer 23

Frictional unemployment: Arises from normal labor turnover. It’s the gap between Someone Voluntarily leaving a job and finding another. “Between jobs”
Structural unemployment: Arises from technology changes or management decisions that result in long-term unemployment within a given country. Ex: Blacksmith Still looking For work.
Seasonal unemployment: Arises from a decrease in jobs owing to a Change in Season. Typically, there are fewer Jobs in the winter because of the Slowdown in construction, farming, and summer tourism jobs.
Cyclical unemployment: Arises from a decrease in sobs owing to a downturn in the overall economic conditions. In other words, when the economy heads into a slow Period in its economic cycle.

Question 24

Calculate the unemployment rate and Labour participation rate

Answer 24

Unemployment Rate
People who are actively looking for a job/ People actively looking for work + people who are employed
Labor participation rate
People who are actively looking for a job+employed/All Canadians between 14-65.