1. During a period of recession/contraction, which of the following would be true?

1. The supply of goods and services would be decreasing.

2. Interest rates would be decreasing.

3. Unemployment would be increasing.

4. Inflation would be decreasing.

a. 1 and 2. b. 1 and 3. c. 1, 2 and 3. d. 1, 2 and 4. e. 1, 2, 3, and 4.

2. Which of the following is a fiscal policy tool used by Congress that influences the money supply and interest rates?

a. Prime Lending Rate. b. Open Market Operations. c. Discount Rate. d. Debt Management.

3. Which firm has high operating leverage? One with:

a. High fixed costs and low variable cost.

b. High fixed cost and high variable cost.

c. Low fixed cost and low variable cost.

d. Low fixed cost and high variable cost.

4. A firm has operating leverage if it uses which of the following?

a. Long-term debt. b. An equal amount of debt and equity. c. Fixed costs. d. High variable costs.

5. Which of the following amplifies EPS?

a. Degree of operational leverage.

b. Degree of financial leverage.

c. Both of the above.

d. Neither of the above