SAMPLE QUESTIONS - PART 1- revised 2/08 Section A. Business Economics 1. In the long run, a firm may experience decreasing returns due to a. b. c. d. the principle of substitution. opportunity costs. marginal costs. diseconomies of scale.

2. If the price of computers decreases and total revenue of the firm increases, then the demand for computers is a. b. c. d. inelastic and the elasticity of demand is greater than one. inelastic and the elasticity of demand is less than one. elastic and the elasticity of demand is greater than one. elastic and the elasticity of demand is less than one.

3. Which one of the following most accurately describes the market conditions normally associated with pure competition? a. b. c. d. High barriers to entry; homogenous products; many independent firms. Few independent firms; high barriers to entry; differentiated products. Low barriers to entry; homogenous products; many independent firms. Differentiated products; many independent firms; low barriers to entry.

4. The trough of a business cycle is generally characterized by which one of the following? a. b. c. d. Shortages of essential raw materials. Increasing capital investments. Increasing price level. High unemployment.

5. Information related to the financial transactions for a country is given below with values stated in billions of US$. Gross domestic product (GDP) Transfer payments Corporate income taxes Social Security contributions Indirect business taxes Personal taxes Undistributed corporate profits Depreciation $4,000 500 50 200 210 250 25 500

Net income earned abroad What is National Income? a. b. c. d. $3,500. $3,290. $3,475. $4,500.

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Section B. Global Business 6. Assume that the US dollar is depreciating against the Japanese yen. Which of the following groups benefits most? a. b. c. d. Japanese importers from China Japanese exporters to US US exporters to Japan US government

7. Which one of the following is the most likely result of the U.S. imposing a tariff on imported steel? a. Foreign steel producers will ship more steel to the U.S., but at a lower price. b. Foreign steel producers will ship less steel to the U.S., but U.S. users of steel will pay more. c. U.S. steel producers will sell more steel to U.S. users, but at a lower price. d. Foreign steel producers will benefit from the higher price of steel. 8. The Baker Company, a U.S. corporation, has a manufacturing affiliate in Mexico. Baker wants to expand the capability of this plant. The plant is very profitable and generates a substantial positive cash flow. The Mexican Peso equivalent of US$1,000,000 is available to be paid in dividends to the U.S. parent from the Mexican affiliate. In addition, another affiliate, located in Europe, has the Euro equivalent of US$750,000 available to be paid in dividends. Which one of the following should not be considered when Baker is trying to determine the best way to finance a $500,000 investment in the Mexican facility? a. b. c. d. The current book value of the Mexican facility. Interest rates in Mexico. Interest rates in Brazil. The expected movement of the Mexican peso and the Euro versus the US dollar.

Section C. Internal Controls 9. Which one of the following is most likely to be a major contribution that internal auditors can make to the corporation for which they work? a. Prepare financial statements for submission to regulators. b. Identify corporate risks for top management, and suggest methods of minimizing those risks. c. Attest to the completeness and accuracy of financial statements for outside investors. d. Advise top management on how to interpret new accounting standards. 10. Which one of the following adds to the risk of operating an online, real time computer system? a. Updates are made continuously as transactions are processed. b. The system interacts with many function of the business, including sales, purchases, payables, receivables, and inventory. c. The system allows faster