Money, Banking Fiscal Policy
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CPA Auditing and Attestation (AUD) › Money, Banking Fiscal Policy
Which of the following methods may the Federal Reserve use to reduce inflationary pressures?
Decrease the target interest rate
Increase margin requirements
Decrease reserve requirements
Increase the money supply
Explanation
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.
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 retiree living on a fixed income
A saver whose savings was placed in a variable rate savings account
A union worker whose contract includes a provision for regular cost of living adjustments
Explanation
A retiree living on fixed income would be hurt because the retiree's income would not increase to offset the negative effects of inflation.
If the Federal Reserve raises the discount rate, which of the following effects is likely to occur?
Short term interest rates will likely increase
Consumer spending will increase
Corporate profits will increase
Fixed interest rates on mortgages will decrease
Explanation
Declines in the money supply lead to an increase in interest rates.
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 industry is controlled by a large number of companies
When the supplier does not face the threat of substitute products
When the purchasing industry is an important customer to the supplying industry
Explanation
When there are few good substitutes for a supplier's product, the supplier has market power.
Which one of the following is not one of Porter's five forces?
Bargaining power of customers
Existence of complementary products
Barriers to market entry
Existence of a substitute product
Explanation
Existence of complementary products is not one of Porter's five forces.
When will new companies attempt to enter a market?
When the economy is weak
When there is monopolistic competition
When the economy is strong
When there is an ologopoly
Explanation
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.