ECONOMICS (Management Advisory Services), Quizzes of Financial Management

Download ECONOMICS (Management Advisory Services) and more Quizzes Financial Management in PDF only on Docsity! CPAR CPA REVIEW SCHOOL OF THE PHILIPPINES M a n i l a MANAGEMENT ADVISORY SERVICES ECONOMICS 1. If both the supply and the demand for a good increase, the market price will a. Rise only in the case of an inelastic supply function. b. Fall only in the case of an inelastic supply function. c. Not be predictable with only these facts. d. Rise only in the case of an inelastic demand function. 2. A supply curve illustrates the relationship between a. Price and quantity supplied c. Price and quantity demanded b. Price and consumer tastes d. Supply and demand 3. As a business owner you have determined that the demand for your product is inelastic. Based upon this assessment you understand that a. Increasing the price of your product will increase total revenue b. Decreasing the price of your product will increase total revenue c. Increasing the price of your product will have no effect on total revenue d. Increasing the price of your product will increase competition 4. Which one of the following has an inverse relationship with the demand for money? a. Aggregate income c. Interest rates b. Price levels d. Flow of funds 5. An improvement in technology that in turn leads to improved worker productivity would most likely result in a. A shift to the right in the supply curve and a lowering of the price of the output. b. A shift to the left in the supply curve and a lowering of the price of the output. c. An increase in the price of the output if demand is unchanged. d. Wage increases. 6. Which of the following market features is likely to cause a surplus of a particular product? a. A monopoly c. A price ceiling b. A price floor d. A perfect market 7. A decrease in the price of a complementary good will a. shift the demand curve of the joint commodity to the left b. increase the price paid for a substitute good c. shift the supply curve of the joint commodity to the right d. shift the demand curve of the joint commodity to the right 8. Demand for a product tends to be price inelastic if a. the product is considered a luxury item b. few good complements for the product are available c. the population in the market area is large d. people spend a large share of their income on the product 9. Which of the following has the highest price elasticity coefficient? a. Milk c. Bread b. Macaroni and cheese d. Ski boats 10. The local video store’s business increased by 12% after the movie theater raised its prices from P65 to P70. Thus, relative to movie theater admissions, videos are a. substitute goods c. complementary goods b. superior goods d. public goods MAS 9210-Econ MAS 9210-Econ ECONOMICS Page 2 of 10 11. An individual receives an income of P3,000 per month, and spends P2,500. An increase in income of P500 per month occurs, and the individual spends P2,800. The individual’s marginal propensity to save is a. 0.2 b. 0.4 c. 0.6 d. 0.8 12. In any competitive market, an equal increase in both demand and supply can be expected to always a. increase both price and market-clearing quantity b. decrease both price and market-clearing quantity c. increase market-clearing quantity d. increase price 13. Given the following data, what is the marginal propensity to consume? Level of Disposable income Consumption P40,000 P38,000 48,000 44,000 a. 1.33 b. 1.16 c. 0.95 d. 0.75 14. Which of the following will cause a shift in the supply curve of a product? a. Changes in the price of the product. c. Changes in consumer taxes. b. Changes in production taxes. d. Changes in the number of buyers in the market. 15. When the government imposes health and safety regulations on certain products, one of the most likely results is a. greater consumption of the product c. greater tax revenues for the government b. lower prices for the product d. higher prices for the product 16. In which of the following situations would there be inelastic demand? a. A 5% price increase results in 3% decrease in the quantity demanded. b. A 4% price increase results in a 6% decrease in the quantity demanded. c. A 4% price increase results in a 4% decrease in the quantity demanded. d. A 3% price decrease results in 5% increase in the quantity demanded. 17. In a competitive market for labor in which demand is stable, if workers try to increase their wage a. employment must fall b. government must set a maximum wage below the equilibrium wage c. firms in the industry must become smaller d. product supply must decrease 18. A polluting manufacturing firm tends, from the societal viewpoint, to a. price its products too low c. report too little profitability b. produce too little output d. employ too little equity financing 19. If the government regulates a product or service in a competitive market by setting a maximum price below the equilibrium price, what is the long-run effect? a. A surplus c. A shortage b. A decrease in demand d. No effect on the market 20. A valid reason for the government to intervene in the wholesale electrical power market would include which one of the following? a. A price increase that is more than expected. b. Electricity is an essential resource and the wholesale market is not competitive. c. The electricity distribution companies are losing money. d. Foreign power generators have contracts with the local government at very high prices. MAS 9210-Econ ECONOMICS Page 5 of 10 43. An upturn in economic activity is indicated by all of the following, except a. Increased housing starts b. Reduction in the quantity of unemployment claims c. Increase in personal travel d. Reduction in the amount of luxury purchases 44. Which of the following may provide a leading indicator of a future increase in gross domestic product? a. A reduction in the money supply b. A decrease in the issuance of building permits c. An increase in the timeliness of delivery by vendors d. An increase in the average hours worked per week of production workers 45. Which one of the following statements about leading economic indicators is not true? a. For forecasting purposes, several variables are monitored and weighted-average is referred to as the index of leading indicators b. The index of leading indicators has historically been very accurate c. The use of the index of leading indicators involves monitoring the data on a monthly basis d. As the nature of the economy has changed, it has been necessary to revise the components of the index of leading indicators 46. Disposable income is calculated as a. Gross domestic product minus the capital cost allowance b. Net domestic product minus indirect business taxes plus net income earned abroad c. Personal income minus transfer payments d. Personal income minus personal taxes 47. The primary reason for allowing legal immigration into industrial nations is the immigrants’ potential for a. Reducing a trade deficit c. Contributing to economic growth b. Fulfilling a trade agreement d. Fulfilling a political agreement 48. Some economic indicators lead the economy into a recovery or recession, and some lag it. An example of a lagging indicator is a. Chronic unemployment c. Orders for consumer and producer goods b. Housing starts d. Consumer expectations 49. Government borrowing to finance large deficits increases the demand for lendable funds and a. Increases the supply of lendable funds c. Exerts downward pressure on interest rates b. Has no impact on interests d. Puts upward pressure on interest rates 50. A period of rising inflation a. Increases the price level, which benefits those who are entitled to receive specific amounts of money b. Enhances the positive relationship between the price level and the purchasing power of money c. Will not be affected by contracts that include the indexing of payments d. Increases the price level, which is negatively related to the purchasing power of money 51. The most effective fiscal polity program to help reduce demand-pull inflation would be to a. Decrease the rate of growth of the money supply b. Increase both taxes and government spending c. Decrease taxes and increase government spending d. Increase taxes and decrease government spending MAS 9210-Econ ECONOMICS Page 6 of 10 52. The money supply in a nation’s economy will decrease following a. Open-market purchases by the nation’s central bank b. A decrease in the discount rate c. An increase in the reserve ratio d. A decrease in the margin requirement 53. According to fiscal policy principles, a tax increase will a. Increase spending and increase aggregate demand b. Increase spending and reduce aggregate demand c. Reduce spending and increase aggregate demand d. Reduce spending and reduce aggregate demand 54. Which of the following instruments of monetary policy is the most important means by which the money supply is controlled? a. Changing the reserve ratio c. Manipulation of government spending b. Open-market operations d. Changing the discount rate 55. If a government were to use only fiscal policy to stimulate the economy from a recession, it would a. Raise consumer taxes and increase government spending b. Lower business taxes and government spending c. Increase the money supply and increase government spending d. Lower consumer taxes and increase government spending 56. The national budget deficit is the a. total accumulation of the national government’s surpluses and deficits b. Excess national and local spending over their revenues c. Amount by which the national government’s expenditures exceed its revenues in a given year d. Amount by which liabilities exceed assets on the national government’s balance sheet 57. Which of the following is a tool of monetary policy that a nation’s central bank could use to stabilize the economy during an inflationary period? a. Selling government securities c. Lowering bank discount rates b. Lowering bank reserve requirements d. Encouraging higher tax rates 58. Economists and economic policy makers are interested in the multiplier effect because the multiplier explains why a. A small change in investment can have a much larger impact on gross domestic product b. Consumption is always a multiple of savings c. The money supply increases when deposits in the banking system increase d. The velocity of money is less than one 59. Assume that the Congress passes a tax bill that provides for a “rebate” to taxpayers. One the goals of the rebate is a. Increase consumer disposable income and expand the economy b. Increase consumer disposable and contract the economy c. Decrease consumer disposable income and expand the economy d. Increase consumer disposable income and contract the economy 60. The rate of unemployment caused by changes in the composition of unemployment opportunities over time is referred to as the a. Frictional unemployment rate c. Cyclical unemployment rate b. Structural unemployment rate d. Full-employment unemployment rate 61. The producer price index measures a. The price of a basket of commodities at the point of the first commercial sale b. Price changes for all products sold by domestic producers to foreigners c. Price changes of goods purchased for other countries MAS 9210-Econ ECONOMICS Page 7 of 10 d. The price of a fixed market basket of goods and services purchased by typical urban consumers 62. Which of the following is true about deflation? a. It motivates consumers to borrow money c. It results in very low interest rates b. It motivates businesses to make investments d. It results in economic expansion 63. Economies often experience inflation but seldom experience long period of deflation. Which of the following is true about a deflationary economy? a. Companies are hesitant to make investments b. The lower prices encourage consumers to make major purchases c. Interest rates tend to be high d. Actual GDP is above potential GDP 64. What factors explains the difference between real and nominal interest rates? a. Inflation risk b. Credit risk c. Default risk d. Market risk 65. All of the following are true about international trade except that a. the gains from international trade depend on specialization with comparative advantage b. absolute advantage without comparative advantage does not result in gains from international trade c. absolute advantage is defined as the ability of one nation to produce a product a relatively lower opportunity cost than other nation d. Where there is a reciprocal absolute advantage between two countries, specialization will make it possible to produce more of each product 66. If the central bank of a country raises interest rates sharply, the country’s currency will most likely a. increase in relative value b. remain unchanged in value c. decrease in relative value d. decrease sharply in value at first and then return to its initial value 67. Which one of the following groups would be the primary beneficiary of a tariff? a. Domestic producers of export goods b. Domestic producers of goods protected by the tariff c. Domestic consumers of goods protected by the tariff d. Foreign producers of goods protected by the tariff 68. In the law of comparative advantage, the country which should produce a specific product is determined by a. Opportunity costs c. Economic order quantities b. Profit margins d. Tariffs 69. Assuming exchange rates are allowed to fluctuate freely, which one of the following factors would likely cause a nation’s currency to appreciate on the foreign exchange market? a. A relatively rapid rate of growth in income that stimulates imports b. A high rate of inflation relative to other countries c. A slower rate of growth in income than in other countries, which causes imports to lag behind exports d. Domestic real interest rates that are lower than real interest rates abroad 70. Exchange rates are determined by a. Each industrial country’s government b. The International Monetary Fund c. Supply and demand in the foreign currency market d. Exporters and importers of manufactured goods