Questions

Questions for Chapter 15 Economic Analysis

Review questions:

Q-15.1 Explain difference in economic analysis between an investment for retirement and an analysis of a client for open account privileges.
Q-15.2 Why doesn't a financial analyst need to conduct much economic analysis him/herself?

Q-15.3 How accurate are forecasts by economists?

Q-15A1.1 What is the range of annual economic growth rates experienced over the past half century in the world?
Q-15A1.2 Have developing countries grown faster at times than developed countries?
Q-15A1.3 Has the annual rate of economic growth been rising in United States in the most recent past (20 years)?
Q-15A1.4 What are the four major econo-political reasons for economic growth?
Q-15A1.5 What prediction can be made about future developments government attitude toward international trade and avoidance of war?
Q-15A1.6 What is the major social change that contributed to a growth of the labor force over the past fifty years in developed countries?
Q-15A1.7 Can further increases in women participation in the labor force be expected to continue to rise?
Q-15A1.8 Has women participation in the labor force exceeded men participation recently?
Q-15A1.915A1.9 What is the major last determinant of labor force growth?
Q-15A1.10 Does Western Europe have a higher rate of growth of population?
Q-15A1.11 What is the projected rate of population growth in the United States?
Q-15A1.12 What proportion of economic growth is attributable to productivity growth in the United States?
Q-15A1.13 List the five positive components of productivity growth.
Q-15A1.14 What negative factor caused productivity growth to be reduced?
Q-15A1.15 Which of the five positive components of productivity growth give the best hope of continued improvement?
Q-15A1.16 How much more gains are possible in improvement of skills due to education in the United States?
Q-15A1.17 Can net capital investment be expected to rise in the future in the United States?
Q-15A1.18 Are increases in economies of scale possible for American firms? Why and how?
Q-15A1.19 What role is the internet expected to play in future productivity gain?
Q-15A1.20 What has been the average productivity gain over the past 20 years in the United States?
Q-15A1.21 What is an conservative prediction of annual growth rate for the United States?

Q-15A2.1 Why socio-economic trends need to be studied by an analyst?
Q-15A2.2 What is the most important impact of socio-economic trend changes that bring about changes in consumer needs and wants?
Q-15A2.3 How does an analyst choose the socio-economic trends to investigate?

Q-15B.1 How can the business cycle be broken down beyond two phases (recession and expansion)?
Q-15B.2 What differentiates a business cycle from cycles in industries or regions?

Q-15B1.1 Has the severity of business cycles in the United States increased in the recent past?
Q-15B1.2 What can be said about the length of expansion phases recently compared to the past?

Q-15B2.1 Describe major features of an overheating expansion phase.
Q-15B2.2 Describe the beginning of an economic slow down after the peak.
Q-15B2.3 Describe the contraction once the slow down becomes entrenched.
Q-15B2.4 Describe the recession or depression that results from the contraction.
Q-15B2.5 Describe the recovery after the trough.
Q-15B2.6 Describe the early expansion once recovery is assured.
Q-15B2.7 Describe what cause the expansion to eventually overheat.

Q-15B3.1 Can the severity of business cycles in the 19th century be attributed to misguided government policies?
Q-15B3.2 Give examples of policy errors in the 20th century.
Q-15B3.3 What are the two major policies that are used to control business cycles?
Q-15B3.4 Have economist believed that government policies worked so well that it was possible to fine tune the economy?
Q-15B3.5 How is modern fiscal policy known?
Q-15B3.6 Who is responsible for improvements in monetary policy?

Q-15B4.1 Outline the price disequilibrium explanation of business cycles.
Q-15B4.2 Outline the exogenous force explanation of business cycles.
Q-15B4.3 Outline the underconsumption explanation of business cycles.
Q-15B4.4 Outline the overinvestment explanation of business cycles.
Q-15B4.5 Outline the psychological explanation of business cycles linked to innovations.
Q-15B4.6 Outline the forced saving explanation of business cycles.
Q-15B4.7 Outline the acceleration explanation of business cycles.
Q-15B4.8 Outline the multiplier explanation of business cycles.
Q-15B4.9 Outline the explanation of business cycles linked to overlending by banks.
Q-15B4.10 Outline the explanation attributing business cycles responsibility to misguided monetary policy.
Q-15B4.11 Why are there so many different interpretation of the business cycle?

Q-15C.1 Is it dangerous to put great emphasis on recent economic patterns? Give examples.
Q-15C.2 Is forecasting economic behavior necessary in capital budgeting? Why?
Q-15C.3 Why is an economic turning point so crucial for investment strategies?
Q-15C.4 Do financial analyst have to construct complete economic forecasts by themselves?

Q-15C1.1 What is the name given to a forecast technique based on economic relationships derived with regression analysis and projected into next period?
Q-15C1.2 Give example of well-known econometric models.
Q-15C1.3 How many equations can an econometric model have?
Q-15C1.4 How are the values of exogenous variables obtained?
Q-15C1.5 What is the name given to variables that are explained by other variables?
Q-15C1.6 What is a key requirement for an econometric model to be logical?

Q-15C2.1 What is the name of the forecasting tool that is made of a matrix of coefficient representing the relationship of every economic sector with ane another?
Q-15C2.2 How many sectors are included in the input-output table of the US Department of Commerce?
Q-15C2.3 Describe how an input-output table is used to make forecasts. For instance, start with a oil price increase.
Q-15C2.4 In which countries were input-output tables ordinarily used as major forecasting tools?

Q-15C3.1 What is the name given to a forecasting technique that focuses on a spectral analysis of a variable over time?
Q-15C3.2 What are the three types of regression used in a times-series analysis?
Q-15C3.3 What are the limitations of time-series analysis?
Q-15C3.4 What are key variables missing from times-series analysis?

Q-15C4.1 Why are judgmental forecasts appropriate in economic forecasts?
Q-15C4.2 Who are the individuals that are considered as experts in the field of business cycles?
Q-15C4.3 Is using a large number of experts preferable? What problems arise?
Q-15D4.4 How a probabilistic distribution constructed in a judgmental forecast?
Q-15C4.5 How convergence toward a consensus forecast is achieved?
Q-15C4.6 What is the name of the technique that facilitates convergence to consensus forecast?
Q-15C4.7 Why makes judgmental forecasts superior to econometric or time-series forecasts?

Q-15C5.1 What are the names of the three type of indicators published by the US government since 1938?
Q-15C5.2 What is the purpose of the leading indicator?
Q-15C5.3 List some of the components of the composite leading indicator.
Q-15C5.4 What is the purpose of the coincidental indicator?
Q-15C5.5 List some of the components of the composite coincidental indicator.
Q-15C5.6 What is the purpose of the lagging indicator?
Q-15C5.67 List some of the components of the composite lagging indicator.
Q-15C5.8 Why is it difficult to forecast with indicators?
Q-15C5.9 Can forecasts beyond one year be made using indicators?
Q-15C5.10 What do indicators predict best

Q-15C6.1 Are interest rates linked to the business cycle? Discuss.
Q-15C6.2 Has there been a time when recession and inflation coincided in American economic history?
Q-15C6.3 List the commonly given explanations of inflation.
Q-15C5.4 What variables are used in linking inflation to monetary conditions?
Q-15C6.5 How does demand for investment affect interest rates? How does that change over the business cycle?
Q-15C6.6 How does liquidity preference affect interest rates? How does that change over the business cycle?
Q-15C6.7 In which type of composite indicator is interest rate present?
Q-15C6.8 Which forecasting techniques are appropriate for interest rate forecasting?
Q-15C6.9 Which forecasting techniques are inappropriate for interest rate forecasting?

Previous: Readings
Last modified: Jun/01/01 Next: Exercises, Cases & Assignments