CIC Economic & Financial Analysis 5

Question 1

Which of the following BEST describes the concept of 'creative destruction' in economics?

Accepted Answer

The process by which innovation displaces established industries and business models

Answer

Coined by Joseph Schumpeter, creative destruction describes how innovation continuously replaces old industries, products, and business models with new ones, driving long-run economic growth.

Question 2

An investment manager observes that two companies in the same industry have identical revenue but very different net income margins. Which financial statement analysis technique would BEST isolate the cause?

Accepted Answer

Common-size income statement analysis expressing each line as a % of revenue

Answer

Common-size income statements express every line item as a percentage of revenue, making direct cost structure comparisons between companies of similar size possible.

Question 3

The 'output gap' in macroeconomics refers to the difference between:

Accepted Answer

Actual GDP and potential GDP

Answer

The output gap measures how far actual economic output deviates from its potential (full-employment) level; a negative gap indicates slack and deflationary pressure.

Question 4

Which accounting method produces LOWER reported earnings during a period of rising input costs?

Accepted Answer

LIFO (Last-In, First-Out)

Answer

LIFO assigns the most recent (higher) costs to COGS first, resulting in higher cost of goods sold and lower reported net income during inflationary periods.

Question 5

In analyzing a country's balance of payments, a capital account surplus indicates:

Accepted Answer

Net foreign investment into the country exceeds net investment abroad

Answer

A capital account (financial account) surplus means foreigners are investing more capital into the country than domestic investors are sending abroad.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Economic & Financial Analysis 5