CPA Business Environment and Concepts (BEC) : Economic Markets
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Example Questions
Example Question #1 : Economic Markets
If the US dollar increases in value relative to other major currencies, aggregate demand should:
Not necessarily change
Decrease as US goods become less attractive overseas
Increase as US goods become more attractive overseas
Depends on supply of foreign goods
Decrease as US goods become less attractive overseas
If the dollar gains In value, net exports will suffer as US goods become more expensive overseas, hence aggregate demand will decrease.
Example Question #2 : Economic Markets
An increase (right shift) in aggregate demand causes:
An increase in the price level and a decrease in real GDP
A decrease in the price level and an increase in real GDP
An increase in the price level and an increase in real GDP
A decrease in the price level and a decrease in real GDP
An increase in the price level and an increase in real GDP
A right shifting increase in aggregate demand would cause an increase in the price level and increase in real GDP.
Example Question #3 : Economic Markets
Which of the following is most likely to accompany a reduction in aggregate demand?
An increase in real GDP
An increase in the price level
A decrease in employment
A decrease in the unemployment rate
A decrease in employment
As aggregate demand falls, the unemployment rate rises so employment would decrease.
Example Question #3 : Economic Markets
Which of the following situations best illustrates a potential horizontal merger between Companies A and B?
A operates in the financial services industry and B in the pharmaceutical industry
Both are competitors in the same industry
A is a textile manufacturer and B operates as a wholesaler for A's products
A supplies raw materials to the production processes for B
Both are competitors in the same industry
When two companies operating in the same industry merge, it represents a horizontal merger.
Example Question #4 : Economic Markets
Pet Inc. is looking to expand its cat and dog food business in the upcoming year. After due diligence is performed, Pet Inc. identifies another company that would fulfill its strategic objective but is much larger and has various other lines of business. Which strategy should Felix management pursue given the above?
Acquisition
Tender offer
Merger
Purchase of assets
Purchase of assets
Since the other company is much larger than Pet Inc., a purchase of assets would not only be the best option, but also the only feasible option.
Example Question #5 : Supply And Demand
When mapping out supply and demand curves, _____ could belong as the Y-axis and _____ could belong as the X-axis.
Supply, demand
Real GDP, quantity
Quantity, price level
Price level, quantity
Price level, quantity
While the supply and demand chart can vary depending on the micro or macroeconomic viewpoint, this option is the only one that could be possible.
Example Question #5 : Economic Markets
Under which of the following conditions is the supplier most able to influence or control buyers?
When the industry is controlled by a large number of companies
When the supplier does not face the threat of substitute products
When the supplier's products are not differentiated
When the purchasing industry is an important customer to the supplying industry
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. As a result, the supplier is better able to control buyers and act as a price setter rather than a price taker.
Example Question #6 : Economic Markets
When does competition not become an even stronger force impacting the profitability of a firm?
Customers do not have strong brand preferences
Various firms use various types of strategic plans
The market is not growing fast
The costs of exiting the market are less than the costs of continuing to operate
The costs of exiting the market are less than the costs of continuing to operate
This is not a factor that would cause market competitiveness to be even stronger.
Example Question #7 : Economic Markets
Price discrimination is accomplished most effectively in markets with which of the following characteristics?
Advanced technology capabilities that determine optimal pricing
Fairly distinct segments of customers
Excess capacity that meets high demand at different price levels
High competition that generates many price changes
Fairly distinct segments of customers
When customers are distinct, a seller can charge different prices to different groups by justifying that the products they are buying are unique to that specific group. There is also less power from the perspective of the customer because they cannot join together as easily and bargain with the seller.
Example Question #9 : Economic Markets
Which type of unemployment is shown when individuals do not have the qualifications or skills necessary to fill available jobs?
Cyclical
Natural
Structural
Frictional
Structural
Structural unemployment occurs when the jobs available do not match the skills of the unemployed individuals.
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