Strayer ECO550 Midterm Exam Part 1 & 2

ECO 550 Midterm Exam Part 1 &
2
Question 1

The Saturn Corporation (once a division of GM) was permanently
closed in 2009. What went wrong with Saturn?

Saturn’s cars sold at prices higher than rivals Honda or Toyota,
so they could not sell many cars.

Saturn sold cars below the prices of Honda or Toyota, earning a
low 3% rate of return.

Saturn found that young buyers of Saturn automobiles were very
loyal to Saturn and GM.

Saturn implemented a change management view that helped make first
time Saturn purchasers trade up to Buick or Ca

Question 2

Various executive compensation plans have been employed to
motivate managers to make decisions that maximize shareholder wealth. These
include:

cash bonuses based on length of service with the firm

bonuses for resisting hostile takeovers

requiring officers to own stock in the company

large corporate staffs

Question 3

A Real Option Value is:

An option that been deflated by the cost of living index makes it
a “real” option.

An opportunity cost of capital.

An opportunity to implement cost savings or revenue expansion in a
flexible business plan.

An objective function and a decision rule that comes from it.

Question 4
To reduce Agency Problems, executive compensation should be
designed to:

create incentives so that managers act like owners of the firm.

avoid making the executives own shares in the company.

be an increasing function of the firm’s expenses.

be an increasing function of the sales revenue received by the
firm.

Question 5

The moral hazard in team production arises from

poorly designed team membership

lack of proper assignment of individual tasks

disorganization in groups

a conflict between tactically best interest and one’s duty

insufficient experience

Question 6

Income tax payments are an example of ____.

implicit costs

explicit costs

normal return on investment

shareholder wealth

Question 7

Based on risk-return tradeoffs observable in the financial
marketplace, which of the following securities would you expect to offer higher
expected returns than corporate bonds?

U.S. Government bonds

municipal bonds

common stock

commercial paper

Question 8

The approximate probability of a value occurring that is greater
than one standard deviation from the mean is approximately (assuming a normal
distribution)

68.26%

2.28%

34%

15.87%

Question 9
Generally, investors expect that projects with high expected net
present values also will be projects with

low risk

high risk

certain cash flows

short lives

Question 10

The ____ is the ratio of ____ to the ____.

standard deviation; covariance; expected value

coefficient of variation; expected value; standard deviation

correlation coefficient; standard deviation; expected value

coefficient of variation; standard deviation; expected value

Question 11

An closest example of a risk-free security is

General Motors bonds

AT&T commercial paper

U.S. Government Treasury bills

San Francisco municipal bonds

an I.O.U. that your cousin promises to pay you $100 in 3 months

Question 12

A change in the level of an economic activity is desirable and
should be undertaken as long as the marginal benefits exceed the ____.

marginal returns

total costs

marginal costs

average costs

average benefits

Question 13

Marginal revenue (MR) is ____ when total revenue is maximized.

greater than one

equal to one

less than zero

equal to zero

equal to minus one

Question 14
When demand is ____ a percentage change in ____ is exactly offset
by the same percentage change in ____ demanded, the net result being a constant
total consumer expenditure.

elastic; price; quantity

unit elastic; price; quantity

inelastic; quantity; price

inelastic; price; quantity

Question 15

Producers’ goods are:

consumers’ goods

raw materials combined to produce consumer goods

durable goods used by consumers

always more expensive when used by corporations

Question 16
Auto dealers slash prices at the end of the model year in response
to deficient demand/excess inventory but restaurants facing the same problem
slash production because

auto customers are less price sensitive than restaurant customers

price elasticity of demand (in absolute values) is higher for auto
than restaurant customers

price elasticity of supply is lower in auto than in restaurants

restaurant food spoils quickly and is much more perishable

price elasticity of supply in autos is smaller than the absolute
value of price elasticity of demand but the reverse is true for restaurants

Question 17

Iron ore is an example of a:

durable good

producers’ good

nondurable good

consumer good

Question 18
Suppose we estimate that the demand elasticity for fine leather
jackets is .7 at their current prices. Then we know that:

a 1% increase in price reduces quantity sold by .7%.

no one wants to buy leather jackets.

demand for leather jackets is elastic.

a cut in the prices will increase total revenue.

leather jackets are luxury items.

Question 19

If demand were inelastic, then we should immediately:

cut the price.

keep the price where it is.

go to the Nobel Prize Committee to show we were the first to find
an upward sloping demand curve.

stop selling it since it is inelastic.

raise the price.

Question 20

In regression analysis, the existence of a high degree of
intercorrelation among some or all of the explanatory variables in the
regression equation constitutes:

autocorrelation

a simultaneous equation relationship

nonlinearities

heteroscedasticity

multicollinearity

Question 21

In which of the following econometric problems do we find
Durbin-Watson statistic being far away from 2.0?

the identification problem

autocorrelation

multicollinearity

heteroscedasticity

agency problems

Question 22

One commonly used test in checking for the presence of
autocorrelation when working with time series data is the ____.

F-test

Durbin-Watson test

t-test

z-test

Question 23

All of the following are reasons why an association relationship
may not imply a causal relationship except:

the association may be due to pure chance

the association may be the result of the influence of a third
common factor

both variables may be the cause and the effect at the same time

the association may be hypothetical

Question 24
When using a multiplicative power function ( X1b1 X2b2 X3b3) to
represent an economic relationship, estimates of the parameters (a, and the
b’s) using linear regression analysis can be obtained by first applying a ____
transformation to convert the function to a linear relationship.

semilogarithmic

double-logarithmic

reciprocal

polynomial

cubic

Question 25
The constant or intercept term in a statistical demand study
represents the quantity demanded when all independent variables are equal to:

1.0

their minimum values

their average values

0.0
Question 1

The forecasting technique which attempts to forecast short-run
changes and makes use of economic indicators known as leading, coincident or
lagging indicators is known as:

econometric technique

time-series forecasting

opinion polling

barometric technique

judgment forecasting

Question 2
If two alternative economic models are offered, other things
equal, we would

tend to pick the one with the lowest R2.

select the model that is the most expensive to estimate.

pick the model that was the most complex.

select the model that gave the most accurate forecasts

Question 3

The variation in an economic time-series which is caused by major
expansions or contractions usually of greater than a year in duration is known
as:

secular trend

cyclical variation

seasonal effect

unpredictable random factor
Question 4
Consumer expenditure plans is an example of a forecasting method.
Which of the general categories best described this example?

time-series forecasting techniques

barometric techniques

survey techniques and opinion polling

econometric techniques

input-output analysis

Question 5

The type of economic indicator that can best be used for business
forecasting is the:

leading indicator

coincident indicator

lagging indicator

current business inventory indicator

optimism/pessimism indicator

Question 6
The use of quarterly data to develop the forecasting model Yt = a
+bYt?1 is an example of which forecasting technique?

Barometric forecasting

Time-series forecasting

Survey and opinion

Econometric methods based on an understanding of the underlying
economic variables involved

Input-output analysis

Question 7

Purchasing power parity or PPP says the ratios composed of:

interest rates explain the direction of exchange rates.

growth rates explain the direction of exchange rates.

inflation rates explain the direction of exchange rates.

services explain the direction exchange rates.

public opinion polls explain the direction of exchange rates.

Question 8

If Ben Bernanke, Chair of the Federal Reserve Board, begins to
tighten monetary policy by raising US interest rates next year, what is the
likely impact on the value of the dollar?

The value of the dollar falls when US interest rates rise.

The value of the dollar rises when US interest rates rise.

The value of the dollar is not related to US interest rates.

This is known as Purchasing Power Parity or PPP.

Question 9

If the British pound (?) appreciates by 10% against the dollar:

both the US importers from Britain and US exporters to Britain
will be helped by the appreciating pound.

the US exporters will find it harder to sell to foreign customers
in Britain.

the US importer of British goods will tend to find that their cost
of goods rises, hurting its bottom line.

both US importers of British goods and exporters to Britain will
be unaffected by changes in foreign exchange rates.

Question 10

Trading partners should specialize in producing goods in
accordance with comparative advantage, then trade and diversify in consumption
because

out-of-pocket costs of production decline

free trade areas protect infant industries

economies of scale are present

manufacturers face diminishing returns

more goods are available for consumption

Question 11

Using demand and supply curves for the Japanese yen based on the
$/Â¥ price for yen, an increase in US INFLATION RATES would

Decrease the demand for yen and decrease the supply of the yen.

Increase the demand for yen and decrease the supply of the yen.

Increase the demand and increase the supply of yen.

Decrease both the supply and the demand of yen.

Have no impact on the demand or supply of the yen.

Question 12

An increase in the exchange rate of the U.S. dollar relative to a
trading partner can result from

higher anticipated costs of production in the U.S.

higher interest rates and higher inflation in the U.S.

higher growth rates in the trading partner’s economy

a change in the terms of trade

lower export industry productivity

Question 13

The purchasing power parity hypothesis implies that an increase in
inflation in one country relative to another will over a long period of time

increase exports

reduce the competitive pressure on prices

lower the value of the currency in the country with the higher
inflation rate

increase foreign aid

increase the speculative demand for the currency

Question 14

The isoquants for inputs that are perfect substitutes for one
another consist of a series of:

right angles

parallel lines

concentric circles

right triangles

Question 15

Marginal factor cost is defined as the amount that an additional
unit of the variable input adds to ____.

marginal cost

variable cost

marginal rate of technical substitution

total cost

Question 16

The combinations of inputs costing a constant C dollars is called:

an isocost line

an isoquant curve

the MRTS

an isorevenue line

Question 17

Given a Cobb-Douglas production function estimate of .72K.18 for a
given industry, this industry would have:

increasing returns to scale

constant returns to scale

decreasing returns to scale

negative returns to scale

Question 18

Which of the following is never negative?

marginal product

average product

production elasticity

marginal rate of technical substitution

slope of the isocost lines

Question 19

The primary purpose of the Cobb-Douglas power function is to:

allow one to make estimates of cost-output relationships

allow one to make predictions about a resulting increase in output
for a given increase in the inputs

aid one in gaining accurate empirical values for economic
variables

calculate a short-run linear total cost function

Question 20

According to the theory of cost, specialization in the use of
variable resources in the short-run results initially in:

decreasing returns and declining average and marginal costs

increasing returns and declining average and marginal costs

increasing returns and increasing average and marginal costs

decreasing returns and increasing average and marginal costs

Question 21
What method of inventory valuation should be used for economic
decision-making problems?

book value

original cost

current replacement cost

cost or market, whichever is lower

historical cost

Question 22

For a short-run cost function which of the following statements is
(are) not true?

The average fixed cost function is monotonically decreasing.

The marginal cost function intersects the average fixed cost
function where the average variable cost function is a minimum.

The marginal cost function intersects the average variable cost
function where the average variable cost function is a minimum.

The marginal cost function intersects the average total cost
function where the average total cost function is a minimum.

Question 23

The existence of diseconomies of scale (size) for the firm is
hypothesized to result from:

transportation costs

imperfections in the labor market

imperfections in the capital markets

problems of coordination and control encountered by management

Question 24

Economies of Scope refers to situations where per unit costs are:

Unaffected when two or more products are produced

Reduced when two or more products are produced

Increased when two or more products are produced

Demonstrating constant returns to scale

Demonstrating decreasing returns to scale

Question 25

The cost function is:

a means for expressing output as a function of cost

a schedule or mathematical relationship showing the total cost of
producing various quantities of output

similar to a profit and loss statement

incapable in being developed from statistical regression analysis