CPA Business Environment and Concepts (BEC) : Economic Concepts & Analysis
Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)
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Example Questions
Example Question #1 : Economic Concepts & Analysis
Which of the following methods may the Federal Reserve use to reduce inflationary pressures?
Increase margin requirements
Decrease the target interest rate
Increase the money supply
Decrease reserve requirements
Increase margin requirements
The Fed can increase margin requirements as a means to decrease the economy's money supply. This is a viable contractionary monetary policy used by the Fed to lower the economy's price level.
Example Question #2 : Money, Banking Fiscal Policy
Which of the following individuals would be most hurt by an unanticipated increase in inflation?
A borrower whose debt has a fixed interest rate
A union worker whose contract includes a provision for regular cost of living adjustments
A saver whose savings was placed in a variable rate savings account
A retiree living on a fixed income
A retiree living on a fixed income
A retiree living on fixed income would be hurt because the retiree's income would not increase to offset the negative effects of inflation.
Example Question #3 : Money, Banking Fiscal Policy
If the Federal Reserve raises the discount rate, which of the following effects is likely to occur?
Consumer spending will increase
Fixed interest rates on mortgages will decrease
Corporate profits will increase
Short term interest rates will likely increase
Short term interest rates will likely increase
Declines in the money supply lead to an increase in interest rates.
Example Question #3 : Money, Banking Fiscal Policy
Under which of the following conditions is the supplier most able to influence or control buyers?
When the supplier's products are not differentiated
When the supplier does not face the threat of substitute products
When the purchasing industry is an important customer to the supplying industry
When the industry is controlled by a large number of companies
When the supplier does not face the threat of substitute products
When there are few good substitutes for a supplier's product, the supplier has market power.
Example Question #5 : Money, Banking Fiscal Policy
Which one of the following is not one of Porter's five forces?
Existence of complementary products
Bargaining power of customers
Existence of a substitute product
Barriers to market entry
Existence of complementary products
Existence of complementary products is not one of Porter's five forces.
Example Question #6 : Money, Banking Fiscal Policy
When will new companies attempt to enter a market?
When there is monopolistic competition
When there is an ologopoly
When the economy is strong
When the economy is weak
When there is monopolistic competition
Under monopolistic competition, barriers to entry are low, and potentially high profits exist in the market. This would incentivize new firms to enter the market.
Example Question #4 : Economic Concepts & Analysis
All of the following are components of the formula used to calculate gross domestic product except:
Government spending
Household income
Foreign net export spending
Gross investment
Household income
GDP calculated through the expenditure approach includes all of the following except household income.
Example Question #1 : Consumer Price Index
What does the consumer price index measure?
Rate of inflation
Prime rate of interest
Average household income
Cost of capital
Rate of inflation
The CPI is a measure of the inflation rate (the percentage change of the consumer price index from one period to the next.)
Example Question #1 : Consumer Price Index
Which of the following is correct regarding the CPI for measuring the estimated decrease in a company's buying power?
The CPI measures what consumers will pay for items
The products a company buys should differ from what a consumer buys
The CPI is skewed by foreign currency transactions
The CPI is measures once every 10 years
The products a company buys should differ from what a consumer buys
The CPI measures the costs of a market basket of specific goods commonly purchased by consumers.
Example Question #4 : Economic Concepts & Analysis
The CPI rises from 131 in year 1 to 136.5 in year 2. What is the annual inflation rate?
4.20%
3%
13.80%
1.38%
4.20%
(136.5-131)/131 * 100 = 4.2%
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