5. Answer the following questions based on text a:

1. What was the economic situation of industrial countries in the midseventies?

2. What was the slow rate of recovery due to?

3. What made a normal package of capital projects unacceptable financially?

4. Considering the situation in the United States, which types of investment fall shortest of the expected level at this stage of business recovery? What are the reasons?

5. Which types of assets are closer to normal levels of commitment at that stage of business recovery and why?

6. What is the best measure of the most durable investment assets?

7. How did the American stock markets react to the rise in investment risk?

8. What is the relationship between the prospective value of new investment and the cost of producing it?

9. What are the most important reasons for this high-degree investment risk?

10. What are the economic consequences of the climbing inflation rate?

11. What has caused the escalation of business regulations?

12. Which is the worst factor for capital investment decision making?

6. Explain the following expressions.

The burst of growth, the failure of confidence, long-lived assets, short-lived assets, a lack of investments, a high-degree investment risk, market value, market price, the rate of inflation, uncertainty and hesitation among businessmen, business regulation.

7. Choose the right answer:

1. The United States has probably been the most successful in

1. reaching the peak of the business cycle,

2. recovering from the low point of the business cycle.

2. The shortfall in the recovery to date is due to

1. a lack of private investment,

2. a lack of incentives.

3. In the U.S. plant and equipment investments

1. are typical for this stage of the business cycle,

1. are smaller than could be expected at this stage of the business cycle.

4. High-risk premiums included in investment calculations

1. discount prospective profits,

2. enlarge expected future profits.

5. The bias against long-lived assets is evidenced by

1. a sharp increase in orders for fabricated structural steel,

2. a slow recovery in orders for fabricated structural steel.

6. In the American stock market price/earnings ratios

1. have fallen to the lowest in two decades,

2. have remained stable for the last 20 years.

7. Real investment parallels

1. the expected market prices,

2. the ratio of existing assets to an index of the replacement cost.

8. The larger the relation between the future market value of new investment and the cost of its production

a) the greater the prospective rate of return,

b) the more uncertain the prospective rate of return.

9. A profound uncertainty of the shape of the future economic environment is caused by:

1. an increasing rate of inflation,

2. an incalculable rate of return.

10. Inflation makes calculation of investment profitability

1. more difficult,

2. more uncertain.

8. Using the words in brackets, explain the meaning of the following terms:

trade cycle (the level of business activity, regular oscillations in, over a period of years);

the low of the trade cycle (low level of business activity, slow growth in output and employment, a period of);

investment (real capital goods, expenditure on);

long-lived investment (in 8, 10, 15 year time profits are expected, investment for which);

rate of return (net profit after depreciation, average capital invested in a business, as a percentage of);

discount rate (to discount bills, percentage at which, the officially announced, a country's central bank, is prepared).