BKM_Sol_Ch_12 - Chapter 12 Macroeconomics and Industry...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 12 - Macroeconomics and Industry Analysis Chapter 12 Macroeconomics and Industry Analysis 1. Expansionary (i.e., looser) monetary policy to lower interest rates would help to stimulate investment and expenditures on consumer durables. Expansionary fiscal policy (i.e., lower taxes, higher government spending, increased welfare transfers) would directly stimulate aggregate demand. 2. a. Gold Mining . Gold is traditionally viewed as a hedge against inflation. Expansionary monetary policy may lead to increased inflation, and could thus enhance the value of gold mining stocks. b. Construction . Expansionary monetary policy will lead to lower interest rates which ought to stimulate housing demand. The construction industry should benefit. 3. A depreciating dollar makes imported cars more expensive and American cars cheaper to foreign consumers. This should benefit the U.S. auto industry. 4. Supply side economists believe that a reduction in income tax rates will make workers more willing to work at current or even slightly lower (gross-of-tax) wages. Such an effect ought to mitigate cost pressures on the inflation rate. 5. a. The robotics process entails higher fixed costs and lower variable (labor) costs. Therefore, this firm will perform better in a boom and worse in a recession. For example, costs will rise less rapidly than revenue when sales volume expands during a boom. b. Because its profits are more sensitive to the business cycle, the robotics firm will have the higher beta. 6. Deep recession Health care (non-cyclical) Superheated economy Steel production (cyclical) Healthy expansion Housing construction (cyclical, but interest rate sensitive) Stagflation Gold mining (counter cyclical) 12-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 12 - Macroeconomics and Industry Analysis 7. a. Oil well equipment Decline (environmental pressures, decline in easily-developed oil fields) b. Computer hardware Consolidation stage c. Computer software Consolidation stage d. Genetic engineering Start-up stage e. Railroads Relative decline 8. a. General Autos. Pharmaceutical purchases are less discretionary than automobile purchases. b. Friendly Airlines. Travel expenditures are more sensitive to the business cycle than movie consumption. 9. This exercise is left to the student 10. The index of consumer expectations is a useful leading economic indicator because, if consumers are optimistic about the future, then they are more willing to spend money, especially on consumer durables. This spending will increase aggregate demand and stimulate the economy. 11. Labor cost per unit of output is a lagging indicator because wages typically start rising well into an economic expansion. At the beginning of an expansion, there is considerable slack in the economy and output can expand without employers bidding up the price of inputs or the wages of employees. By the time wages start increasing due to high demand for labor, the boom period has already progressed considerably. 12.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/25/2009 for the course FNCE 4330 taught by Professor Jianyang during the Fall '09 term at University of Colorado Denver.

Page1 / 7

BKM_Sol_Ch_12 - Chapter 12 Macroeconomics and Industry...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online