Business Risk, Economics, and Strategy Flashcards

Vocabulary practice flashcards covering macroeconomics, government roles, individual and organizational risk management, cognitive biases, operational risk, BP case studies, and supply chain strategy.

5.1 Limited liability AND ease of expansion are advantages to which of the following? A. Sole proprietorships B. Partnerships C. Corporations D. None of the above

C. Corporations

5.2 Which idea replaces an individualized version of well-being with a top-down approach? A. Greatest Happiness Principle B. Societal Happiness Line of Thinking C. Emotional adaptation D. Utilitarianism

B. Societal Happiness Line of Thinking

5.3 According to Chapter 5, which of the following is NOT a role of the government? A. Providing legal structure B. Minimizing competition C. Promoting stability D. Redistributing income

B. Minimizing competition

5.4 As was seen during the Pandemic of 2020, a sudden ______ in unemployment can result in a rapid ______ in interest rates. A. increase; decrease B. increase; increase C. decrease; increase D. decrease; decrease

A. increase; decrease

5.5 Owners of an organization want to maximize company profits and stock prices, while agents (managers) want high pay regardless of company performance. This is referred to as: A. Exchange rate problems B. Agent disagreement C. The principal-agent problem D. A shortcoming of the stock market

C. The principal-agent problem

5.6 According to Chapter 5, which of the following does NOT describe a method of income disposal? A. Personal savings B. Personal taxes C. Personal consumption expenditures D. All of the above describe methods of income disposal

D. All of the above describe methods of income disposal

5.7 John is a handyman who only accepts cash and never reports any income. He uses the highways to drive his work van to customers' homes. John is a: A. Anarchist B. Free-rider C. Philanthropist D. None of the above

B. Free-rider

5.8 According to Bentham, the goal of moral and political action should be to maximize people's: A. Income B. Happiness C. Freedom D. Time

B. Happiness

5.9 ______ represents the largest spending of local revenues. A. Education B. Infrastructure C. Public safety D. Affordable housing

A. Education

5.10 The government stabilizes the economy by balancing: I. Unemployment II. Inflation A. I only B. II only C. I and II D. Neither I nor II

C. I and II

5.11 According to Chapter 5, who urged politicians to design policies that would maximize people's happiness? A. Bentham B. Schwartz C. Diener D. Kahneman

A. Bentham

5.12 Molly goes to the grocery store and spends $75 on food. According to Chapter 5, which of the following describes her purchase? A. Durable good B. Non-durable good C. Service D. Consumption good

B. Non-durable good

5.13 How can positive externalities be corrected? A. Subsidizing consumers B. Subsidizing suppliers C. Allowing the government to provide goods D. All of the above

D. All of the above

5.14 According to Chapter 5, which of the following are the two reasons people save? A. Security and speculation B. Consumption and entertainment C. Shelter and food D. Emergencies and leisure

A. Security and speculation

5.15 The sum of all taxes withheld from wages and salary is known as the: A. Social Security taxes B. Personal income taxes C. Tax wedge D. Corporate income taxes

C. Tax wedge

5.16 The portion of household income that is NOT paid in taxes or used to purchase goods is: A. Capital gains B. Personal savings C. Net income D. Service income

B. Personal savings

5.17 Which of the following is the most popular ownership structure within the U.S.? A. Sole proprietorship B. Partnership C. Corporation D. None of the above

A. Sole proprietorship

5.18 Redistributing income, providing a structure, and promoting stability are: A. Government roles B. Individual roles C. Organization roles D. None of the above

A. Government roles

5.19 In 1941, households paid approximately 3% of their income in federal income taxes. In the 2000s, this percentage has grown to almost: A. 50% B. 35% C. 25% D. 15%

D. 15%

5.20 Production costs inflicted upon a third party are negative externalities. These can be corrected by: I. Enacting legislation or regulation II. Targeting specific products for taxation A. I B. II C. Both can be used D. Neither are effective

C. Both can be used

5.21 According to Chapter 5, how do most people in the US earn income? A. Interest on investments B. Corporate profits (own shares of corporations) C. Wages and salaries (work for others) D. Proprietors' income (own their own business)

C. Wages and salaries (work for others)

5.22 State governments most commonly generate revenue through: I. State income taxes II. Sales taxes III. Property taxes A. I B. II C. III D. I, II, and III E. I and II F. II and III

E. I and II

6.1 What motivates an individual to perform an action? A. Risk B. Reward C. Bias D. Incentive

D. Incentive

6.2 True or False: Individuals and organizations both measure risk/return with expected utility. A. True B. False

B. False

6.3 Which of the following actions describes a way organizations use expected value? A. Organizations account for external factors using net realizable value. B. Organizations estimate the future cash flows generated by an investment and then discount them back to present value. C. Organizations and individuals capitalize assets in order to predict future economic benefit. D. Organizations eliminate bias by accounting for difficult transaction mechanisms in macroeconomic systems.

B. Organizations estimate the future cash flows generated by an investment and then discount them back to present value.

6.4 Politicians seeking re-election today: I. Tend to focus on short-term outcomes II. Generally see spending today as more important than protecting cash flows for future generations III. Make decisions based on reducing the national debt A. I B. II C. III D. I and II E. I, II, and III F. II and III

D. I and II

6.5 A lower cost of capital suggests an alternative is: A. Safer B. More risky C. Requires a very high reward D. Poor

A. Safer

6.6 When considering age bias, older generations tend to ______ younger generations. A. Take more risks than B. Take less risks than C. Downplay the actual level of risk more than D. Take about the same level of risk as

B. Take less risks than

6.7 Which of the following is a way organizations utilize opportunity cost in their calculations? A. Discounting B. Estimating C. Simulating D. Projecting

A. Discounting

6.8 The skill of critical decision making requires an understanding of: A. State laws B. Case law C. The trade-off between risk and reward D. The Family Medical Leave Act

C. The trade-off between risk and reward

6.9 People who live through a major natural disaster will likely: A. Be objective in assessing future risk B. Underestimate future risk of a similar occurrence C. Feel relieved, because lightning never strikes twice in the same location D. Overestimate future risk of a similar occurrence

D. Overestimate future risk of a similar occurrence

6.10 What field basically studies incentive systems? A. Risk management B. Psychology C. Economics D. None of the above

C. Economics

6.11 People who have experienced a low-probability/high-consequence event tend to overestimate its likelihood. What type of bias does this describe? A. Experience bias B. Age bias C. Probability bias D. Projection bias

A. Experience bias

6.12 Which entity is most likely to take additional risk without regard to the amount of reward associated with it? A. Individuals B. Corporations C. Governments D. Sole proprietorships

C. Governments

6.13 As discount rates become higher: A. Long-term cash flows are more valuable B. Long-term cash flows are less valuable C. The national deficit is reduced D. None of the above will occur

B. Long-term cash flows are less valuable

6.14 A bias can be described by which of the following? A. Objective view B. Subjective view C. Tangible view D. Continuous view

B. Subjective view

6.15 Bill's Bookstore needs to restock textbooks for the upcoming semester. Bill, the owner, offers a monetary bonus based on how many books an employee restocks (10 textbooks = $1 bonus). This is an example of a(n): A. Age bias B. Positive reinforcement C. Risk/reward D. Incentive

D. Incentive

6.16 A company notices employees taking a lot of sick time around flu season. Concerned with employee health, it begins offering free flu shots for each employee and up to 4 family members. This is an example of: A. Moral biases B. Individual level incentives C. Organizational level incentives D. Financial biases E. Government level incentives

C. Organizational level incentives

6.17 Which of the following is NOT a main bias we encounter when developing models? A. Age bias B. Cultural bias C. Location bias D. Media bias

C. Location bias

6.18 A(n) ______ is an inclination of temperament or outlook to present or hold a partial perspective at the expense of (possibly equally valid) alternatives in reference to objects, people, or groups. A. Decision B. Necessary risk C. "Known known" D. Bias

D. Bias

6.19 Eric must keep a B average, or else lose his starting position on the basketball team. What type of incentive best describes this situation? A. Financial B. Coercive C. Moral D. Natural

B. Coercive

6.20 Proper decision making implies entities willing to accept additional risk should be: A. Compensated B. Congratulated C. Ridiculed D. Economic theory discourages taking additional risk

A. Compensated

6.21 Sue is a bright college student who follows all the news channels. In response to the number of child abductions she has seen on the news lately, she insists that her mother buy a child harness for her younger brother. What type of bias is this? A. Age B. Cultural C. Experience D. Media

D. Media

6.22 At which level are incentives found? A. Individual B. Organizational C. Societal D. All of the above

D. All of the above

6.23 Political incentives often do what to the discount rate? A. Increase the discount rate B. Decrease the discount rate C. Have no effect on the discount rate D. Not enough information is known to determine the effect

A. Increase the discount rate

6.24 True or False: Age biases occur when people in different age groups interpret information about risk differently. A. True B. False

A. True

6.25 Cole's Consulting Consortium (CCC) signed a contract to deliver work one year from today, for which it will receive $1,000,000. How much is that contract worth in today's dollars if CCC's discount rate is 10%? A. $900,000 B. $909,090.91 C. $920,000 D. $950,000

B. $909,090.91

6.26 CCC can only fulfill one of two requests. Client 1 will pay $57,000 today. Client 2 will pay $62,000 exactly one year from today. CCC's discount rate is 10%. Which contract has the higher present value? A. Client 1 B. Client 2 C. They are both equal D. Not enough information was given

A. Client 1

6.27 CCC can only fulfill one of two requests. Client 1 will pay $65,000 one year from today. Client 2 will pay $72,000 one year from today. CCC's normal discount rate is 12%, but it applies 15% to Client 2 because of higher nonpayment risk. Which contract has the higher present value? A. Client 1, with a present value of $58,035.71 B. Client 2, with a present value of $62,608.70 C. Both are equal D. Not enough information is given

B. Client 2, with a present value of $62,608.70

7.1 A sailboat is an example of: A. Real property B. Intangible asset C. Personal property D. None of the above

C. Personal property

7.2 Which of the following is NOT one of the five main categories of risk faced by individuals? A. Property B. Liability C. Reputational D. Health

C. Reputational

7.3 Risks associated with smart pills include: I. Better academic performance II. Paranoia III. High blood pressure A. I only B. II only C. III only D. I and II E. I and III F. II and III G. I, II, and III

F. II and III

7.4 In which age category do you face the highest risk of premature death? A. Your 40s B. Your 30s C. Your 50s D. The risk of premature death does not change with age

A. Your 40s

7.5 Individual risk evaluations require an analysis of: I. Severity II. Frequency III. Seasonality A. I only B. II only C. III only D. I and II E. I and III F. II and III G. I, II, and III

D. I and II

7.6 Which category probably faces the largest financial impact from premature death? A. Single wage-earning adult with dependents B. Married wage-earning adult with dependents C. Single non-wage-earning adult with no dependents D. Child

A. Single wage-earning adult with dependents

7.7 What are assets that are exposed to a loss if an individual lives a long life? A. Savings, Retirement, and Wealth B. Retirement, Property, and Wealth C. Property, Savings, and Retirement D. Equipment, Property, and Savings E. Savings, Equipment, and Wealth

A. Savings, Retirement, and Wealth

7.8 Some of the benefits of using "smart pills" referenced in the reading include: A. Anxiety B. Improved focus C. Addictiveness D. Reduction in usage

B. Improved focus

7.9 One of the specific risks faced by college students is increased anxiety and depression. Common causes include: I. Increased responsibilities II. Living with new roommates III. Navigating new social situations A. I only B. II only C. III only D. I and II E. I and III F. II and III G. I, II, and III

G. I, II, and III

7.10 When discussing the specific risks college students face, Chapter 7 stated that the risks can be effectively managed through: A. Situational awareness B. Building relationships C. Seeking assistance when needed D. All of the above E. None of the above

D. All of the above

7.11 Poor financial planning by individuals may cause: A. Early retirement B. A return to the workforce following retirement C. Better Social Security benefits D. More leisure time

B. A return to the workforce following retirement

7.12 Which of the following are elements of a loss exposure? I. Asset exposed to loss II. Cause of loss III. Financial consequences of loss A. I only B. II only C. III only D. All of the above are elements of a loss exposure

D. All of the above are elements of a loss exposure

7.13 Causes of liability include: A. Violations of statutory laws B. Violations of contract terms C. Negligent behavior D. All of the above E. None of the above

D. All of the above

7.14 ______ is/are not designed to compensate the injured party for property damage or bodily injury, but to punish the individual or organization for their wrongful act. A. Civil wrong B. Special damages C. Punitive damages D. General damages E. Liability

C. Punitive damages

7.15 According to the reading, which of the following are true based on the Duquesne University School of Nursing study on sexual violence among college students? I. Approximately 20% of female victims of sexual violence will report the crime to law enforcement II. Undergraduate men report experiencing nonconsensual sexual touching more than undergraduate women III. LGBTQ college students experience more sexual harassment than heterosexual students A. I only B. II only C. III only D. I and II E. I and III F. II and III G. I, II, and III

E. I and III

7.16 Punitive damages are associated with which risk category? A. Property B. Liability C. Health D. Investment markets

B. Liability

7.17 Which of the following is an example of a cause of loss under a property risk? A. Fire B. Theft C. Hurricane D. Accident E. All of the above

E. All of the above

7.18 Define loss exposure. A. A condition that presents a possibility for loss on a financial level only, but must have actually occurred. B. Any situation or condition that presents a possibility for loss, regardless of whether that loss actually occurs. C. A condition that presents a possibility for loss on a financial level only, regardless of whether that loss actually occurs. D. Any situation where loss actually occurs. E. A situation that presents no possibility for loss.

B. Any situation or condition that presents a possibility for loss, regardless of whether that loss actually occurs.

7.19 Real property owned by individuals exposed to risk of loss includes all of the following EXCEPT: A. Crops B. House (used as primary residence) C. Family car D. Barn

C. Family car

7.20 Examples of smart pills include: I. Ritalin II. Adderall III. Advil A. I only B. II only C. III only D. I and II E. I and III F. II and III G. I, II, and III

D. I and II

7.21 The financial consequences of property risks include: I. Reduction in property value II. Increases in expenses III. Lost income A. I only B. II only C. III only D. I and II only E. All of the above

E. All of the above

7.22 When evaluating health risks, each of the following is a cause of loss EXCEPT: A. Genetics B. Accidental injuries C. Inflation D. Poor care

C. Inflation

7.23 Stimulant drugs such as Ritalin and Adderall are classified under which drug schedule? A. Schedule 1 B. Schedule 2 C. Schedule 3 D. Schedule 4 E. Schedule 5

B. Schedule 2

8.1 Which of the following terms best describes a rare, unexpected event (e.g., the discovery of alien life on Mars)? A. Black swan B. Red herring C. Catastrophe D. None of the above

A. Black swan

8.2 In efforts to rebrand BP, growth was attained through which of the following methods? A. Hostile takeovers B. Outsourcing C. Mergers and acquisitions D. None of the above

C. Mergers and acquisitions

8.3 Pluto owns a company producing dog houses. A recent storm produced tornadoes that destroyed part of Pluto's production factory. Which category of risk does this fit under? A. Operational risk B. Hazard risk C. Financial risk D. Legal risk

B. Hazard risk

8.4 Losses due to exchange rates, investment losses, credit risks, and liquidity risks are an example of what kind of risk? A. Financial risk B. Hazard risk C. Operational risk D. None of the above

A. Financial risk

8.5 Which of the following is the main theme in the 10 recommendations from the Baker Report? A. Process safety B. Support for line management C. Board monitoring D. Additional expertise within workforce

A. Process safety

8.6 Joe is applying for a job as an accountant. The application contains a question about Joe's religious affiliation. This is an example of: A. Privacy protection B. Inappropriate criteria C. Fact checking D. Normal data collection

B. Inappropriate criteria

8.7 Which of the following is NOT an internal source of operational risk? A. Manufacturing processes B. Employee mistakes C. Mismanagement D. Stock market volatility

D. Stock market volatility

8.8 The COVID-19 pandemic is an example of a: A. Disruptor B. White swan C. Grey swan D. Black swan

C. Grey swan

8.9 Benefits of the use of big data include: A. Reduction in reliance on intuitional decision making B. Reduction in human error in evaluating opportunities and risk C. Improved understanding of consumers D. Improved identification of innovation opportunities E. All of the above

E. All of the above

8.10 Critics of BP's approach to rebranding asked how an oil company could be which of the following? A. Profitable B. Green C. Sustainable D. Efficient

B. Green

8.11 Which of the following organizational risks deals with pure risk (loss vs. no loss)? A. Operational risk B. Financial risk C. Strategic risk D. Reputational risk E. All of the above F. None of the above

F. None of the above

8.12 Deviations in profitability defines which risk category? A. Business risk B. Strategic risk C. Hazard risk D. Financial risk

A. Business risk

8.13 In the BP case discussed in class, we identified some overriding themes. Which of the following was NOT one of them? A. Corporate strategy B. Workplace safety C. Corporate culture D. Managerial efficiency

D. Managerial efficiency

8.14 Which investigative body concluded that BP endangered workers to cut costs? A. OSHA B. US Chemical Safety and Hazard Investigation Board (CSB) C. Pipeline and Hazardous Materials Safety Administration D. None of the above

B. US Chemical Safety and Hazard Investigation Board (CSB)

8.15 Business risk can encompass which of the following? A. Operational B. Hazard C. Strategic D. All of the above

D. All of the above

8.16 Alice owns a bakery and makes fresh pastries each day. One day a customer breaks a tooth on a rock found in one of her pastries. This best fits under which type of risk? A. Reputational risk B. Liability risk C. Hazard risk D. Financial risk

B. Liability risk

8.17 Which of the following was NOT included in the corporate strategy perspective for BP? A. Growth through mergers and acquisitions B. Growth through hostile takeovers C. Doing more with less D. Cost cutting

B. Growth through hostile takeovers

8.18 Which of the following is NOT a risk of data-driven decision making? A. Poorly designed/incorrect models B. Poorly thought-out goals C. Poor communication D. Inappropriate criteria E. All of the above are risks

E. All of the above are risks

8.19 Sally desperately wants to open her own nail salon. She opens on the north side of town, which she did not realize receives relatively little traffic. Which category would this error fit under? A. Operational B. Hazard C. Strategic D. Financial

C. Strategic

8.20 The people, processes, and systems in place to produce the company's product/service describe which risk category? A. Strategic B. Financial C. Operational D. Hazard

C. Operational

8.21 Poor design is one type of risk in data-driven decision making. Which of the following is NOT an example of poor design? A. Wrong assumptions B. Poor proxies C. Fact checking D. No verification of results E. Poor data sources

C. Fact checking

8.22 An effective process management program requires: A. Separation of management levels B. Automation of business activities C. Open channels of communication at all organizational levels D. Managing competing priorities

C. Open channels of communication at all organizational levels

8.23 Operational risk is estimated to account for what percentage of business loss? A. 10% B. 30% C. 40% D. 75%

B. 30%

8.24 Product mix is typically associated with which risk category? A. Business risk B. Strategic risk C. Operational risk D. Product mix poses no risk for business

B. Strategic risk

8.25 A seller wants to understand the buying habits of its customers based on data collected from an internet survey. This analysis is best described as: A. Big data B. Algorithm C. Survey analysis D. Behavioral analytics

D. Behavioral analytics

8.26 Which of the following was NOT a finding in the report on BP's March 2005 accident? A. Absence of safety leadership B. Need for an independent panel to review safety C. Overworking employees D. Inadequate resources for safety

C. Overworking employees

8.27 A business can experience both internal and external fraud. Internal fraud is an example of: A. Strategic risk B. Operational risk C. Legal risks D. Risks of direct physical loss

B. Operational risk

9.1 An organization's plan for its success is its: A. Mission statement B. Strategy C. Corporate culture D. Articles of incorporation

B. Strategy