The Wall Street Journal Weekly Quiz s2

The Wall Street Journal Education Program Weekly Review & Quiz Covering front-page articles from Jan 8-12, 2007 Professor Guide with Summaries Spring 2007 Issue #1 Developed by: Scott R. Homan Ph.D., Purdue University

Questions 1 – 12 from The First Section, Section A

At GM, Curbing Inventories Calls For Juggling Act By NEAL E. BOUDETTE and JOSEPH B. WHITE January 8, 2007; Page A1 http://online.wsj.com/article/SB116822882091369946.html

DETROIT -- After a tumultuous year, General Motors Corp. heads into the industry's big auto show here this week determined to prove it can regain its long-lost status as a technology and design leader, making vehicles consumers will be eager to buy without waiting for GM to cough up huge discounts. Even as Chief Executive Rick Wagoner talks up future GM models -- including an electric prototype called the Chevrolet Volt -- some of the vehicles GM touted as hot prospects at last year's North American International Auto Show are piling up unsold on dealer lots. The loss-plagued auto maker also has had limited success with the new pricing strategy it announced at the 2006 show. At the end of December, GM had more than one million vehicles in stock in the U.S. That's equivalent to about 41,000 vehicles for every point of its 24.6% U.S. market share. By contrast, Toyota Motor Corp. of Japan, one of the world's most profitable auto makers, carried about 16,000 vehicles of inventory per point of its 15.4% market share. GM says it is comfortable with its inventories, but their size illustrates a dilemma Mr. Wagoner faces as he struggles to turn the company around. To return to profit in the U.S., GM -- after years of selling cars mainly with the help of heavy discounts -- needs to build more-appealing vehicles and persuade consumers to pay full price for them. To do that, it has to stop making more vehicles than the market demands, or risk triggering a new cycle of discounting. Getting consumers excited about its new vehicles may be one of GM's thorniest tests as it seeks to rebound from two years of huge losses. Already, Mr. Wagoner has proved he can cut costs. Last year he presided over an unprecedented deal to buy out more than 30,000 U.S. factory workers, about a third of GM's American work force, and a separate agreement under which the United Auto Workers for the first time accepted cuts to retiree health-care benefits. GM, whose stock is up nearly 60% since the end of 2005, has also moved faster than rival Ford Motor Co. to streamline its global vehicle engineering operations, and could reap potentially big cost savings over the next several years. Along the way, Mr. Wagoner defeated an effort by Las Vegas investor Kirk Kerkorian to use a 9.9% stake in GM to push the company into a partial merger with rivals Nissan Motor Corp. and Renault SA. Mr. Kerkorian sold his GM holdings late last year.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 1 of 36 GM has also won high marks from analysts for some of the snazzy vehicle designs it has started to produce, and it has several more in the pipeline. In Detroit, GM is showing a convertible version of a new Camaro that has won raves and is due in 2009. Even so, GM still needs to generate huge sums each year to cover the more than a million people, mostly retirees and their dependents, who depend on the company for health benefits. That means that GM can't simply shrink its U.S. operations to meet reduced demand without risking making GM North America too small to finance its debts and obligations to workers. "It's a very delicate balance," says Frederick "Fritz" Henderson, GM's chief financial officer. Slowing production would stop the inventory buildup and prop up prices. But it would sacrifice revenue at a time when GM needs every dollar in sales it can bring in. If GM continues to run North American plants at the current pace, it may have to resort to rebates and discounts to spur sales, which would hurt profit margins and undermine prices. The models stacking up unsold include the Chevrolet Tahoe, a big SUV, launched in early 2006. In the fall, GM dealers had 125 days' worth of Tahoes on hand, about twice what is considered optimal. That's now down to 83 days, but GM is nevertheless curbing production. Talking to reporters at the Detroit auto show, Mr. Wagoner shrugged off the Tahoe production cut, noting that the model's average sales price -- $38,254, according to market researcher Power Information Network -- is "way higher" than that of competing vehicles, and Tahoe has about 70% market share in its segment. The Buick Lucerne, touted last year as a harbinger of classier designs for that brand, has cooled off, and dealers have 114 days' supply on hand. The Saturn Aura -- a sporty midsize sedan named "Car of the Year" at this year's Detroit show -- is selling slowly and backing up on dealer lots. GM had a 93-day supply of Auras at the end of November, though that had shrunk to 75 days by the end of last month. A GM spokesman said it is natural for auto makers to build inventories of new models. Particularly surprising is the sudden sales slowdown for the Chevrolet HHR, a retro- styled miniwagon that GM's executives lauded as proof that eye-catching styling could reinvigorate sales. But after GM tried to raise prices on the HHR last year in response to what appeared to be strong demand, sales slumped. Now GM has a 154-day supply of the HHR on hand, even as Toyota, Honda Motor Co. and Nissan have little trouble selling their miniwagons. Cost cutting alone isn't enough to put GM back on solid footing, says Mr. Henderson, the CFO. The company also has to improve what he and other GM insiders call "contribution margin," basically the profits left over after the costs of building the car are deducted from the revenue realized after discounts. The main way for GM to do that, he says, is to keep prices firm and avoid incentives and low-margin sales to rental fleets that artificially boost sales, damage the image of GM's brands and undermine resale values.

1. At the end of December, GM had _____ of the US automobile market share. a. 22.4% b. 24.6% Correct c. 26.4%

2. GM needs to generate huge sums each year to cover the more than a million people, mostly retirees and their dependents, who depend on the company for ____. a. educational benefits b. retirement benefits c. relocation benefits d. health benefits Correct

Chávez Moves New Socialism To Faster Track By DAVID LUHNOW and JOSÉ DE CÓRDOBA in Mexico City and RAÚL GALLEGOS in Caracas January 9, 2007 2:17 p.m.; Page A1 http://online.wsj.com/article/SB116828731994770541.html

Venezuelan President Hugo Chávez took a big step toward what he calls "21st-century socialism" by vowing to nationalize the country's biggest telecommunications and electricity companies, both controlled by U.S. firms. He also said he would throw out the country's commercial code and strip the central bank of all remaining traces of its autonomy. The moves by Mr. Chávez, a populist who won a landslide re-election last month, are the latest in a flurry of actions to tighten his grip on power and use his country's oil riches to create a model of development different from the market-oriented economics that have dominated Latin America and much of the developing world for the past two decades. Some Venezuelans fear that Mr. Chávez, a close ally and disciple of Cuba's ailing dictator, Fidel Castro, is reshaping Venezuela along Cuban lines, with the state controlling economic and political power. The Venezuelan leader has denied the comparison in the past, but critics said his latest moves belie the denial. "Let's call a spade a spade. This is communism," said Eric Ekvall, a political analyst in Caracas. "He's clearly saying the state should own the means of production." Mr. Chávez, whom the ailing Cuban leader sees as the successor to his revolutionary mantle in Latin America, used a speech yesterday to his new cabinet members to flaunt his ties to Mr. Castro. He ended his speech using the Cuban's signature sign-off: "Fatherland or death, we will triumph!" Mr. Chávez's longtime ally, former Vice President José Vicente Rangel, chimed in at the ceremony with another signature Castro phrase: "Always towards victory, Comandante!" Years after the collapse of Soviet communism and the embrace of free-markets by countries around the world, Mr. Chávez is taking this Andean nation of 26 million in the other direction, greatly expanding the role of government in the economy. In the past few years, he has claimed a greater share of the country's giant oil industry for the state. But he has stopped shy of going directly after other major private industry, until now. Although he revealed no details, Mr. Chávez said he would nationalize the country's largest publicly traded private company, Compania Nacional de Teléfonos de Venezuela, known as CANTV. The company, privatized in 1991, is controlled by the U.S. telecom giant Verizon Communications Inc. He also vowed to nationalize Electricidad de Caracas, controlled by Arlington, Va.-based AES Corp.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 3 of 36 The choice of two U.S.-controlled companies will surely not be missed elsewhere in Latin America, where Mr. Chávez has struggled to convince nations to follow his lead and not Washington's. Since Mr. Chávez took office in 1999, he has engaged in vigorous verbal combat with Bush administration officials, going as far as to compare Mr. Bush to the devil in an appearance last year at the United Nations. But despite all the rhetorical flourishes, the two countries are bound at the hip. Venezuela remains the U.S.'s fourth largest oil supplier and the U.S. is by far Venezuela's most important trading partner. Neither seems ready to cut that economic tie. Washington has tried of late to avoid being drawn into the fray. Yesterday, there was no official reaction by U.S. government officials to Mr. Chávez's announcement. Mr. Chávez offered no details of how the nationalization would proceed or whether shareholders in the private companies would receive market value for their stakes. As one of the world's top 10 oil-producing nations and founding member of the Organization of Petroleum Exporting Countries, Venezuela is flush with cash from high oil prices and could easily pay compensation. In a statement, Verizon said it wasn't aware of the details of the government's plan and couldn't issue a comment. It had agreed to a 60-day extension -- through Feb. 28 -- of its agreement to sell its 28.5% stake in CANTV to Mexico's America Móvil, the mobile- phone company controlled by billionaire Carlos Slim, for $676.6 million. On the New York Stock Exchange, CANTV shares fell 14% to $16.84 before trading was halted shortly after 3 p.m. Eastern time. People familiar with the matter said Verizon had known since August that Mr. Chávez was considering nationalizing the company. They said the company was hopeful it might still reach an agreement with the fiery leader allowing the sale to proceed. A spokesman for Mr. Slim had no comment. AES spokesman Robin Pence said the company had no comment. Mr. Chávez also is consolidating power in the political arena. Soon after the recent election, he unveiled plans to join his coalition of some 20 center and leftist parties into a single party controlled by him called the United Venezuelan Socialist Party -- a move some analysts say leads the country down the road to a single-party state. Yesterday, he said he would ask Congress for special powers to pass bills by decree. In recent years, Mr. Chávez has rewritten the constitution and stacked the Supreme Court with loyalists. Venezuela's Congress, entirely made up of supporters to Mr. Chávez after the opposition didn't field candidates, plans to amend the constitution again to allow him indefinite re-election. In addition, Mr. Chávez is going after one of the few institutions he doesn't control -- the media. He recently said he would yank the broadcast license of one of the country's oldest TV broadcasters and most outspoken critics of his policies, RCTV. Yesterday, Mr. Chávez repeatedly called the secretary-general of the Organization of American States, José Miguel Insulza, an "idiot" for condemning the Venezuelan's decision not to renew the channel's license. Since the price of oil began to rise a few years ago, many countries from Russia to Nigeria have reclaimed a bigger share of their energy industries to cash in. But Venezuela appears to be going further. Daniel Yergin, chairman of Cambridge Energy Research Associates, a U.S. oil-industry consulting firm, says Mr. Chávez's move represents "a

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 4 of 36 return to another era: the 1970s," when it was commonplace for developing nations to own utilities and energy companies and manage them inefficiently. Venezuelans had mixed reactions to the news. Nieves de Marquez, 53 years old, a hotel receptionist, applauded Mr. Chávez's move. "I've always criticized CANTV's high pricing. They also fired a lot of people when they privatized the company and some never got their severance." But others remembered the days when the government managed the phone company. Phone lines were hard to come by, and service was lousy -- it sometimes took less time to drive across town to talk to an acquaintance than to get a dial tone. Analysts worry that Mr. Chávez isn't finished and will use his latest inauguration tomorrow to announce new measures, including increasing the government's role over private education. Last week, he tapped his brother Adán, the former Venezuelan envoy to Havana, as education minister. In Caracas, José Barcia, an economist for Metroeconomica consulting firm, said he expects Mr. Chávez to make moves against other industries as well as private property such as commercial farms. Mr. Chávez's antimarket politics have spawned some imitators, whom he has supported rhetorically and often with loans and subsidies. In Ecuador, newly elected President Rafael Correa also wants a new constitution and a big hike in the government's take from Ecuador's oil industry. In Nicaragua, where former Sandinista leader and Chávez ally Daniel Ortega is slated to assume the presidency this week, Venezuela's ambassador said Mr. Chávez planned to announce a big aid agreement on Thursday which could eventually make the impoverished central American country the most important recipient of Venezuelan aid, outstripping Bolivia and Cuba. But Venezuela's oil riches may make it a special case when it comes to buying out big companies. In Bolivia, President Evo Morales began to nationalize the country's natural- gas industry, but he has struggled to carry out his plan because his impoverished country lacks money and expertise. Meanwhile, more moderate leftist politicians such as Brazil's Luiz Inácio Lula da Silva and Chile's Michelle Bachelet have ignored Mr. Chávez' attempt to turn back the clock on the free market. During his speech, Mr. Chávez also suggested he would further expand the state's role in the oil industry, taking a harder line with major oil firms that operate in the country's Orinoco region, where companies upgrade tarlike oil deposits into lighter grades of crude. Those include BP PLC, Exxon Mobil Corp., Chevron Corp., ConocoPhillips, and Total SA and Statoil ASA. Until now Venezuelan oil officials have said that companies operating in the Orinoco region would have to give the state at least a 51% stake in upstream oil operations, but would allow its foreign partners to maintain control of multibillion-dollar upgraders that convert the tar oil. Yesterday, Mr. Chávez said the upgrading side of the business must also pass on to the state.

3. President Hugo Chávez took a big step toward what he calls _____ by vowing to nationalize his country's biggest telecommunications and electricity companies, both controlled by U.S. firms. a. "19th-century socialism" b. "21st-century socialism" Correct c. "19th-century capitalism"

4. Hugo Chávez is president of ______. a. Venezuela Correct b. Peru c. Cuba d. Brazil

Cuban Economists Envision Role For Markets in Post-Castro Era By BOB DAVIS January 10, 2007; Page A1 http://online.wsj.com/article/SB116840262503872329.html

With Fidel Castro ailing and absent from the public stage, some influential Cuban intellectuals are laying plans for a more market-oriented approach to fortify the island's ailing communist economy. The debate over economic experimentation, squelched a decade ago by the Castro regime, offers a glimpse of what a post-Castro Cuba could look like. Now, it is intensifying at a time when Castro disciple Hugo Chávez is steering Venezuela toward the kind of hardline socialism that has failed to produce prosperity in Cuba. Together, the Cuban economists' proposals would cut down on state interference in businesses and aim to wring more productivity out of the island nation's economy. Among the steps under discussion: decentralizing control, expanding the power of managers at privately owned agricultural cooperatives, extending private ownership to other sectors, boosting investment in infrastructure and increasing incentives to workers. None of the plans would shuck communism for capitalism or open the island further to foreign investment -- which economists outside Cuba say are critical for the island to prosper. But the fact that the government is permitting -- and perhaps even encouraging -- the debate suggests regime officials might find these kinds of changes acceptable, though it may take Mr. Castro's death to put them into action. "We are in the midst of a process of debate, which is cautious and controlled, but is happening for the first time in many years," said Pedro Monreal, a senior professor at the Center for Research on the International Economy in Havana. "It's an historic moment," says Julia Sweig, a Cuba specialist at the Council on Foreign Relations in Washington. "The Cuban regime feels confident enough to have voices it once purged be at the center of the economic debate on reform." The proposals are prompted by the continuing economic privation in Cuba, where state salaries don't come close to covering living costs. But the planning is made more immediate by the 80-year-old Mr. Castro's continuing health problems. The Cuban government hasn't disclosed the nature of Mr. Castro's illness -- a Spanish surgeon recently said it isn't cancer -- but he hasn't been seen in public since temporarily relinquishing power at the end of July, and he is unlikely to return to his presidential duties. Phony Numbers Cuba claims its economy grew at 12.5% last year, after an 11.8% gain in 2005, which would make it one of the world's fastest-growing nations, but critics say the numbers are

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 6 of 36 as phony as those once produced by the Soviet Union. Carmelo Mesa-Lago, a professor emeritus at the University of Pittsburgh, who has long tracked the Cuban economy, says Cuba engages in statistical sleights of hand, such as double-counting entries, changing base years to yield better results and failing to show how it estimates revenue produced by Cuban doctors and other professionals working overseas. I don't see anything [in Cuban economic statistics] that would warrant this magic rate of growth," says Mr. Mesa-Lago, who figures the government is probably inflating its growth statistics by at least two-thirds. Whatever growth Cuba manages owes a lot to Venezuela, which provides it with subsidized oil -- some of which Cuba re-exports -- and employs tens of thousands of Cuban professionals. President Chávez sees himself as an heir to Mr. Castro in leading a bloc opposed to U.S. policies, and earlier this week said he would nationalize his country's largest telecommunications and electric-utility companies, aping Mr. Castro's early moves in his turn to communism. Even with the aid, most Cubans are able to scrape by only by working in black-market enterprises or because of cash sent by relatives in the U.S. and Europe. The disconnect between the Cuban government's claims and the Cuban's people's bleak living standards may increase popular pressure for change. "The Cuban people can believe that the economy is growing statistically, but it's not growing in their homes," says Rafael Hernández, editor of the magazine "Temas" -- "Issues" in English -- a scholarly quarterly in Havana that writes about the Cuban political-economy and society. Mr. Hernández says the government should pick up the renovation agenda that Mr. Castro and his brother Raúl, now Cuba's acting president, shut down in 1996 for straying too far from socialist ideology and for potentially undermining political control. At the time, the regime approved agricultural co-ops -- which survive today -- where the state continues to own the land but members own the business and equipment. These entities can sell a portion of their output in farmer's markets at prices higher than those set by the state. Now, Mr. Hernández says the co-ops should be used as a model for other sectors. Small textile or shoe makers should be able to start co-ops that sell in private markets, he said. Currently, the government permits only families to own such private businesses; a co-op would be able to expand and hire employees outside the family. But under Mr. Hernández's concept, co-op members wouldn't be permitted to sell shares in their venture, which might accelerate capital accumulation. "Co-ops are socialist," he says. "You could do it without violating socialist principles." Omar Everleny Pérez, a senior researcher at the Center for the Study of the Cuban Economy in Havana, agreed "there should be an increase in the space for the private sector and cooperatives, not only in agriculture, but in other sectors," although he isn't as specific as Mr. Hernández or as confident that change is coming. Mario González-Corzo, an economist at the City University of New York's Lehman College, says the cooperatives would have to be decentralized and revamped to have much of an economic impact. Currently, the government subsidizes co-ops' purchases of fertilizer, machinery and other goods, and sharply limits how much they can sell privately. Managers have to bargain extensively with government officials to get permission to change prices. Mr. Monreal, the Cuban international economist, says the island's economy needs a more thorough makeover, along the lines of what China and Vietnam managed. Cuba is

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 7 of 36 deficient in "calculation, motivation and innovation," he says. By that he means Cuba doesn't let markets determine prices, provide enough incentives for firms and enterprises to earn money, or encourage Cubans to take economic risks. Following a China model would require far more decentralization and acceptance of private markets than Cuba has ever permitted. Even to well-connected Cubans, the direction of the debate is difficult to follow.

5. Mr Monreal, a Cuban international economist, says the island's economy needs a more thorough makeover, Cuba is deficient in _____. a. calculation, motivation and innovation Correct b. land, labor, capital c. motivation, education, industry d. innovation, education, capital

6. Within Cuba co-ops have developed in the area of ______. a. small textile b. shoe makers c. agriculture Correct d. telecommunications

Hawaii's Housing Boom Takes a Toll on the Homeless By RAFAEL GERENA-MORALES January 11, 2007; Page A1 http://online.wsj.com/article/SB116845808553872913.html

WAIANAE, Hawaii -- Rising before dawn, Patrick Wong walks 45 minutes to his drugstore job in Kapolei, a suburban town 20 miles west of Honolulu, where he stocks shelves starting at 7 a.m. The post pays $8.25 an hour and offers health insurance for Mr. Wong, his wife and partially deaf toddler. But Mr. Wong, 33 years old, and his family can't afford a place to live. Five months ago they left his mother's home, where he was paying $600 a month in rent. Faced with the steepest rents of any state and scant available public housing, they were forced to join Hawaii's swelling homeless ranks. Roughly 6,000 people in the state are without permanent shelter, according to Hawaii's Homeless Programs Division. That's nearly double the number without homes in 1999. Increasingly, this population consists of working families with children. Some, like the Wongs, live in city-run shelters. Others have taken up residence on the beach, turning Hawaii's picturesque shores into homeless encampments where hundreds of people live in tents pitched on the sand. One big factor behind Hawaii's homelessness is the housing boom that swept across the U.S. Run-ups in home prices displaced families nationwide, but the problem in Hawaii -- where land costs are more than five times the national average -- is particularly acute. In recent years, investors and second-home buyers swooped in to buy up properties. Developers targeted aging apartment complexes to convert into swank condos and luxury rentals. As home values shot up, many of the state's low-paid service workers watched

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 8 of 36 from the sidelines. Affordable housing dwindled, while waiting lists for federally funded public units ballooned. Rental rates for available units surged. Median rents in Hawaii are currently the highest in the nation. The going monthly rate for a typical two-bedroom apartment is about $1,901, up $792, or 71%, from 2001, according to Ricky Cassiday, a housing analyst in Honolulu. Average wages for Hawaiian workers, meanwhile, were $36,355 in 2005, the last year for which figures are available. That compares with a national average of $40,675 in the same year, according to the U.S. Department of Labor. "For many of the working poor, the housing boom has passed them by," said Jared Bernstein, a senior economist at the Economic Policy Institute. "They've missed a critical opportunity to begin building housing wealth." Hawaii's homelessness rate is cresting as other states are finding more ways to help displaced residents. In recent years, many cities, including New York, San Francisco and Portland, Ore., have sharply reduced their chronically homeless populations -- people who live on the street for one year or more -- by offering subsidized housing with an array of social and health services. Hawaii officials say they are studying similar approaches. Overall, an estimated 744,313 people were homeless in the U.S. in January 2005, according to a report released yesterday by the National Alliance to End Homelessness, an advocacy group based in Washington, D.C. The study showed that states with high rates of homelessness included Hawaii, California, Nevada and Alaska. (See related article2.) Hawaii's economy is robust. In 2005, the hot real-estate market, coupled with record tourism business, helped Hawaii rank as the ninth strongest state economy, measured by annual GDP growth, which was 5.3%. That was a sharp turnaround from 1997 to 2004 when annual GDP growth averaged just 1.4%. Hawaii also has the nation's lowest unemployment rate, at 2.3% in November compared with the 4.5% national average in the same month. Economic Threat But the homelessness problem looms as an economic threat. Hawaii, whose current population is about 1.3 million, needs affordable housing to attract and retain service workers amid a tight labor market. The beach encampments also hurt Hawaii's postcard image as a top vacation destination. Hawaii's Tourism Authority says it has received some comments from visitors who said they felt uncomfortable seeing homeless people in parks or at the beaches. Last summer Gov. Linda Lingle declared an emergency situation on the west coast of Oahu, citing the public-health threat of human waste on the beaches. Mismanagement of the state's limited public-housing stock has aggravated the situation. Hawaii has about 6,230 government-subsidized units. The state has complained that it lacks the resources to keep existing structures in good repair. In Honolulu, wood planks cover the windows of some vacant apartments. In all, roughly 700, or 11%, of the units are vacant, with almost half of those waiting to be renovated or demolished, according to the governor's office. "We're focused on turning around vacant units and getting them operating so that we can house more people," says Pamela Dodson, an executive assistant at the Hawaii Public Housing Authority.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 9 of 36 Linda Smith, the governor's senior policy adviser, says public-housing units fell into disrepair because federal housing subsidies declined as costs to operate the apartments were increasing. Initiatives to build other affordable rental units fell through, she says, after Hawaii's state legislature took $212 million partly earmarked for low-interest construction loans and used the funds to pay other expenses, including salary increases for state workers. In 2004, the U.S. Department of Housing and Urban Development, which oversees public-housing agencies nationwide, placed Hawaii's public-housing agency on its "troubled" list. It ordered the agency to overhaul its management practices. A year later, HUD removed Hawaii's housing agency from the list as it reduced 120 concerns to 10 that still needed improvement, including repairing apartments faster. Barriers Remain Even as the housing market here cools, barriers to affordable housing remain. Hawaii's unionized construction workers have kept the sector's wages high relative to other states. Transportation costs are steep since building materials must be imported into Hawaii and ferried between its islands. The state also has many sacred burial grounds and endangered species and plants that can slow or halt projects, developers say. The result: Building low-cost rental units "is like climbing Mount Everest," says Stanford Carr, president of Stanford Carr Development, a Honolulu-based builder. Nearly 16,000 people are on the state's public-housing waiting list, which typically turns over every three to six years. The waiting time is one to two years for some housing candidates, including homeless families living in shelters. Currently, 4,000 people have also applied for federal housing vouchers that subsidize private-sector apartment rents. The voucher waiting list was recently reopened after being closed for several years. It generally takes people three to five years to get such vouchers. So far, the state has largely focused its relief efforts on the island of Oahu, whose homeless population of roughly 3,500 is Hawaii's biggest. Last year, officials opened three shelters on the island that serve about 650 homeless people. A 300-person shelter that will offer job training and social services is slated to open next month. Also, about 1,215 affordable rental apartments are under development and are set to be completed by 2009, according to the governor's office. State agencies are tapping tax revenues from house sales and other sources to provide developers with low-interest loans to build these projects. Recently completed transitional housing includes an emergency shelter, opened in October, that houses 215 people in Kapolei. About half of the residents are children who had lived with their parents in tents on the beach along Oahu's west coast, also known as the Leeward Coast. Tents on the Beach Kathi Culla, 40, lives with her boyfriend and two young daughters on a Leeward Coast beach. The unemployed couple pitched tents that shelter their mattresses and cooler, which recently stored Kool-Aid juice drinks and root-beer soda cans. A nearby wood shack provides privacy for a portable toilet and a hanging garden hose that serves as a shower head. Their tents are illuminated at night by a string of auto tail lights -- resembling Christmas- tree bulbs -- that are connected through jumper cables to an old car battery. "Nobody pays attention to us out here," Ms. Culla says.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 10 of 36 In early 2006, Patrick Wong and his family still had a place to live. They were staying at his parent's three-bedroom home in Waianae, a poor city on Oahu's west coast, where he paid $600 in monthly rent. But Mr. Wong says his mother asked him to leave in August after they had a falling out. Friends couldn't accommodate the family, so they spent a little more than two months living in a tent on the beach before moving to a shelter. Mr. Wong says he tries to forget about his problems by working hard at his job, where he drives a forklift and stocks shelves with rice, noodles, candy and canned goods. In November, while carrying two 35-pound boxes of Campbell's tomato soup on his shoulders, his back "kind of popped," recalls Mr. Wong. He says he ignored a doctor's advice to rest for a month so that his slipped disk could heal. So far, Mr. Wong has saved one-third of the $3,000 he hopes to someday put toward a security deposit and rent. Even though market rates are still beyond his budget, Mr. Wong says he'll work harder to end his family's homelessness, "even if it kills me." Kasty Kosam is another full-time worker whose family is homeless. Mr. Kosam, 38, his wife and teenage son had to leave their one-bedroom apartment in April 2005, he says, after he fell two months behind on the $600 monthly rent. Mr. Kosam, who earns $8-an- hour driving a truck that delivers vegetables to hotels and restaurants, moved his family to his parent's one-bedroom apartment in the Kalihi section of Honolulu. But they left three months later because other relatives overcrowded the apartment, which now shelters 10 people. About six months ago, Mr. Kosam's wife landed a job packing vegetables at the same company paying $200 a week. Yet the couple remains homeless because they can't afford rents for one-bedroom apartments that average $900 a month in Kalihi. Mr. Kosam, whose family sleeps at an overnight shelter in Honolulu, has been on the waiting list for a public-housing apartment since 2000. His application for a federal housing voucher was rejected in September because his family's income was too high, he says. "It makes me sick to think about high rents," says Mr. Kosam, a former agricultural worker from Micronesia who moved to Hawaii in 2000. "I need somebody to help me."

7. Roughly ____ people in the state of Hawaii are without permanent shelter, according to Hawaii's Homeless Programs Division. a. 600 b. 6,000 Correct c. 60,000 d. 600,000

8. Hawaii ranks as the _____ strongest state economy, measured by annual GDP growth. a. fifth b. sixth c. ninth Correct d. tenth

Rapid Plunge In Price of Oil May Fuel Growth By MARK WHITEHOUSE, ANN DAVIS and BHUSHAN BAHREE January 11, 2007 11:26 p.m.; Page A1 http://online.wsj.com/article/SB116855866186974495.html

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 11 of 36 Oil prices fell sharply yesterday and are now hovering at their lowest levels since mid- 2005, raising the prospect of significant changes in the outlook for corporate profits, consumer spending and the global economy. Crude oil fell another $2.14, or 4%, to $51.88 a barrel yesterday on the New York Mercantile Exchange. The price has plunged 15% since the year began, and hasn't closed as low since May 27, 2005. Oil is now down 33% from its record finish of $77.03 on July 14. The slide, which market participants said was fueled in part by speculative hedge-fund trading and a retreat by other investors, helped send stocks higher as investors bet lower energy prices would fatten corporate profits and strengthen economic growth, particularly in the U.S., the world's leading oil consumer. The Dow Jones Industrial Average jumped 72.82 points, or 0.59%, to a record close of 12514.98. (See related article1). The price of oil tends to be volatile, and it could bounce back quickly. But if sustained, the decline in prices would have a big impact on everything from the American consumer to the profits of giant energy companies. It also could dent the revenues -- and the political clout -- of major oil-producing nations like Russia, Iran and Venezuela. A senior official of the Organization of Petroleum Exporting Countries said yesterday that OPEC will consider the need for an emergency meeting to weigh what it should do to halt the price slide. OPEC already was cutting back its production sharply, the official said. He didn't specify whether the cartel would consider cuts beyond the 1.7 million barrels a day it has already pledged to remove from the market. If lower oil prices lead to a reduction in what American consumers spend on gasoline, it would leave them with more money for all kinds of discretionary purchases, such as restaurant meals, movies and vacations. That spending could provide a welcome cushion for the U.S. economy, which is grappling with a sharp downturn in the housing sector. It could also give a boost to airlines and auto makers, which have been hurt by high fuel prices. As yet, the drop in oil prices hasn't produced much relief at the gas pump. Regular gasoline is selling at a nationwide average of $2.28 a gallon -- down from more than $3 this summer in many parts of the country -- but just a penny less than in December, according to auto club AAA. Nonetheless, oil's pullback "is coming at a great moment for the U.S. economy," says Ethan Harris, chief U.S. economist at Lehman Brothers in New York, who estimates that each $10 reduction in oil prices adds about a half percentage point to annualized growth in inflation-adjusted gross domestic product -- a broad measure of economic activity. "You're worried about this one-two punch from housing -- first construction collapses, and then the consumer collapses. Lower energy prices are acting as a sort of smelling salt," Mr. Harris said. Indeed, many economists credit the retreat of energy prices from their summer peaks for a recent bout of stronger-than-expected economic performance. Nonfarm payrolls in the U.S. grew by a seasonally adjusted 167,000 jobs in December, and economists expect inflation-adjusted consumer spending to have grown more than 4% in the fourth quarter of 2006. That has led some to raise their estimates of inflation-adjusted GDP growth in the fourth quarter to an annual rate of more than 3%, compared with forecasts of about 2% just a month ago.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 12 of 36 The added impetus for the U.S. economy could change the picture for the Federal Reserve, which is trying to keep short-term interest rates high enough to keep inflation under control, but not so high as to cripple the economy. In recent months, prices in bond and futures markets have suggested that investors expect a slowing economy and receding inflation pressures to allow the Fed to lower interest rates in 2007. As oil prices have fallen, though, those expectations have changed. "If this acts like a tax cut and consumers spend a lot of it, then it just makes the Fed more and more likely to stay on hold and to watch carefully what happens to inflation," said Richard Berner, chief U.S. economist at Morgan Stanley in New York. In futures markets yesterday, investors placed a 30% probability on the Fed lowering short-term interest rates to 5% by July from the current 5.25%. That was down from 44% Wednesday. The strength of the U.S. and global economies is one reason many doubt oil prices will remain weak for long. "I would expect to see the market bounce back," said Nariman Behravesh, chief economist at consulting firm Global Insight. "The fundamental in terms of the oil market is demand growth, which comes from economic growth. From that perspective, we don't see any further weakening." Analysts attribute lower oil prices in part to the fact that, with the start of the new year, many large institutional investors, such as pension funds, have been pulling back from energy investments. Also, unseasonably warm weather in many parts of the U.S. spilled into January, temporarily reducing oil demand. If it continues, however, the current drop in oil prices would create a number of winners and losers. Companies whose fortunes depend on heavy oil consumption, from auto makers to airlines, could see their profits grow. On the other hand, oil companies would see their earnings fall, and investors that bet big on rising oil prices could find themselves in trouble. Lower oil prices are "a plus for us," said Paul Ballew, top sales analyst at General Motors Corp., noting that higher oil prices significantly crimped auto demand last year. GM is a top producer of gas-guzzling sport-utility vehicles and pickup trucks and is counting on big sales of its new Chevrolet Silverado; the auto maker has blitzed the airwaves with ads for the pickup during football games. Auto makers suffered as sales of profitable trucks and SUVs plummeted during the second half of 2006. Gasoline prices that hovered around $3 a gallon pushed consumers away from those vehicles, especially SUVs. Light-truck sales dropped nearly 6% in 2006, according to Autodata Corp.

9. Oil is now down _____ from its record finish of $77.03 on July 14. a. 3% b. 13% c. 23% d. 33% Correct

10. Lower oil prices are ____ said Paul Ballew, top sales analyst at General Motors Corp. a. a hard reality to accept b. hurting SUV sales c. a difficult situation for OPEC d. a plus for us Correct

Perils of Prediction: Seeing Rubber Cities and an End to Cars By CYNTHIA CROSSEN January 8, 2007; Page B1 http://online.wsj.com/article/SB116823083860870009.html

If you are tempted to make predictions about the future at this time of year, consider keeping them to yourselves. History can so easily make a fool of you. All of the predictions below, made in the past century, appeared in reputable newspapers or magazines. A few -- very few -- turned out to be remarkably prescient, such as one made by Maj. Gen. George O. Squier in 1911: "The time will surely come," he said, "when the methods of electrical intercommunication will have been so developed and multiplied that the people of the world's different countries may become real neighbors." That same year, Richard Lucas of the Royal College of Surgeons in England made the unlikely prediction that some day human beings in the future would become one-toed. "The small toes are being used less and less as time goes on," he opined, "while the great toe is developing in an astonishing manner." In 1929, a New York City haberdasher, John David, predicted that "the well-dressed man of 2020 will wear shorts for every occasion except formal events." Jean Guthrie, associate editor of Better Homes and Gardens, said in 1942 that the housewife of the future would know how to repair radios, irons, lamps, washing machines and cars. It's easy to make fun of dreamers -- and, who knows, one or two might still turn out to be right. You have to give credit to those who dare to guess how the world might look a decade, or even a century, later. In 1925, nobody fell on the floor laughing -- at least not publicly -- when Harvey W. Corbett of the American Institute of Architects said, "Fifty years hence automobile traffic will have entirely disappeared from the surface thoroughfares of New York City, and people will be shot through tubes like merchandise." Transportation has provided especially fertile ground for the wrongheaded. "The giant airplane of 300- to 400-passenger capacity, while technically possible," wrote a U.S. aviation official in 1944, "appears to offer little economic advantage and to involve a great sacrifice of convenience for the traveler, owing to the inevitable reduction in scheduling frequency which results from using such large units." Ten years earlier, Charles F. Kettering, vice president of General Motors, had said, "It is not difficult to envision that in the future, the entire system of aerial transportation will be unaffected by fog and weather conditions in general." Hybrid automobile-airplanes, according to Bill Stout, research director of the Consolidated Vultee Aircraft Corp. in 1943, "will fly through the air and then fold their wings like a housefly and run along the road." Predictions are almost invariably tinged with wishful thinking. In 1914, Sir Henry Blake, a British government official, foresaw the noiseless city, where rubber would replace brick, stone and asphalt as street paving. That would be helpful in the utopia imagined by Prof. D. F. Fraser-Harris, who in 1946 predicted that in the future, "The right of all adult

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 14 of 36 persons whatsoever to eight hours per night of tranquil repose will be admitted as inalienable as their right to exist." Those happy snoozers might live in the house described by John Sutherland, dean of the Boston University School of Medicine in 1912: It will be "equipped with electrical apparatus which will, without the inmates knowing it, keep them constantly charged with electricity, thereby warding off many of the ills and aches that flesh has hitherto been heir to." Perhaps most of all, prophets have been optimistic about the future of war -- or the absence thereof. In 1911, an English clergyman, William Henry Fitchett, suggested, "There will, in the near future, be a revolt, both of the reason and the conscience of the civilized world, from the state of armed peace which at present prevails, with its ever- multiplying fleets of Dreadnoughts and its universal training for war. The appliances for war have grown to such a scale that war itself will be recognized as impossible." Business executives tend to stick to short-term predictions, but James Lewis Kraft, the cheese maven wrote in 1925, "I do not suppose anyone else ever planned a cheese business to live through the ages. After we are gone, there will be Kraft salesmen trekking the veldt of Africa, braving the snows of Siberia and battling the superstitions of Mongolia -- all earnestly striving to increase sales." So, who can best guide us into the future? In 1937, Hadley Cantril, a psychology professor at Princeton University, studied the relative prophetic ability of various types of people. He sent a questionnaire asking for predictions about world affairs to several hundred people, divided into social and professional groups: bankers, editors, lawyers, public-relations counsel, Communists, historians, economists, social psychologists and laymen. Only one prediction could be checked against events -- whether Congress would let President Roosevelt reorganize the Supreme Court -- and the majority got it wrong. But Dr. Cantril also found some interesting comparisons among categories of people. The two groups who were most confident that their predictions were correct were the bankers and the Communists. Their predictions, however, "were generally opposed."

11. In 1911 Richard Lucas of the Royal College of Surgeons in England made the prediction that some day human beings in the future would become ___. a. telepathic b. super intelligent c. capable of great lifting d. one-toed Correct

How Pepsi Opened Door to Diversity By STEPHANIE CAPPARELL January 9, 2007; Page B1 http://online.wsj.com/article/SB116831396726171042.html

The rivalry between Pepsi and Coke, which started in the 1940s, is legendary in business. Less known is that a more important battle was being fought on the front lines of the cola wars at the same time: the struggle of African-Americans to gain access to professional jobs in major corporations.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 15 of 36 Walter S. Mack, the astute president of the underdog Pepsi-Cola Co., decided he could lift the stalled sales of his soft drink by hiring a team of African-American marketers to make a more concerted effort to pursue the black consumer dollar. How those qualified employees would fit into Pepsi-Cola's corporate culture, and whether they could ultimately be promoted above their separate and narrow specialty -- that was the real Pepsi challenge. At the time, Pepsi was already popular among members of the black population because it offered, as its ads boasted, "twice as much" for the standard nickel price of a soft drink: 12 ounces compared with the six-ounce bottle of most rivals. But the full revenue potential of what was then called "the Negro market" was largely ignored. It wasn't until the end of the decade that white-owned manufacturers began paying serious attention to the untapped market. In 1948, Modern Industry magazine estimated the spending power of America's 14 million blacks at $10 billion -- an amount equal to that of the entire population of Canada, the magazine observed. Mr. Mack had long believed that being different could sometimes provide an advantage. He started pursuing black customers by hiring a three-member sales team of African- Americans in 1940. During World War II, sugar rations and economic pressures made it all but impossible to continue that initial effort. But after the war ended, Mr. Mack decided to court the black consumer with a full department of salesmen, with a budget for advertising and promotional tools. In 1947, he hired Edward F. Boyd, a onetime singer and actor working then for the National Urban League in New York, to create the new division. Six members of that team, now in their 80s and 90s, lived to tell their story for the book, "The Real Pepsi Challenge": Mr. Boyd, Dr. Jean Emmons of Florida, Allen L. McKellar of St. Louis, Julian C. Nicholas of North Carolina, William R. Simms of Massachusetts and Dr. Charles E. Wilson of New Jersey. To their delight, they also lived to see Indra K. Nooyi, an India-born woman, appointed chief executive officer of PepsiCo Inc. in August 2006 -- not long after the company edged past Coca-Cola Co. in value of market capitalization. Both milestones would have been unthinkable in the days when the marketing team was working. Ms. Nooyi, in her post since Oct. 1, also marvels at the struggle of some of the company's earliest hires. "This inspiring team of African-American professionals were far ahead of their time and set the standard for passion, determination and connecting with our customers and consumers," she said. "They also established the economic value of diversity long before 'affirmative action' was conceived." Celebrity Salesmen The mission of the black sales representatives at Pepsi-Cola was to win over loyal new customers -- first by making personal appearances, then by placing ads in the black press and setting up displays at mom-and-pop stores in black communities. The team members had a grueling schedule, working seven days a week, morning and night, for weeks on end. They visited bottlers, churches, "ladies groups," schools, college campuses, YMCAs, community centers, insurance conventions, teacher and doctor conferences, and various civic organizations. They got famous jazzmen such as Duke Ellington and Lionel Hampton to give shout-outs for Pepsi from the stage. No group was too small or too large to target for a promotion.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 16 of 36 These national sales representatives -- 12 at the team's peak in 1951 -- were celebrities in their communities when they worked for Pepsi-Cola. At that time, African-Americans rarely saw a black man working in a suit and tie, carrying a corporate business card. Their activities were covered in the black press, in front-page articles and in gossip columns. "We were living examples of what can happen to you if you go into business," said former salesman Julian Nicholas. The team members were more qualified than their white counterparts -- all had college degrees and one, Jean Emmons, had an M.B.A. from the University of Chicago -- but they were consistently paid less. They also were well-trained, getting additional outside instruction from an expert at the National Urban League, one of the many black organizations desperate to have the men do well. The salesmen did succeed, boosting Pepsi sales in every area they hit with a marketing blitz. "This is what happened in Louisville, KY ... 13% increase among accounts called," read one sign posted by Mr. Boyd at a Chicago bottlers' convention. Thanks to their help, too, Pepsi was able to overtake Coke sales in some rare instances in Northern cities such as Cleveland and Chicago. Their jobs turned most of the men into Pepsi fanatics. Said team member Jean Emmons: "All of my friends had to buy Pepsi. I kept stockpiles of Pepsi in my house. All the places I went had to have Pepsi. If I was out with someone and they ordered Coke, I might have thrown a glass of water in their face. ... My wife would say, 'I think you're going crazy -- Pepsi, Pepsi, Pepsi!' " Dangerous Mission But as much as the men enjoyed their new status, their sales trips could also be humiliating, and sometimes harrowing. Lynchings were still part of the American landscape, and the men knew they had to be careful. They were traveling salesmen in the time of Jim Crow segregation laws. They had to sit in the back of buses, ride in separate train compartments, and eat behind closed curtains in dining cars. Mr. Boyd said one team member, Alexander L. Jackson, the son of a prominent Chicago family, found the indignities too much to bear and soon quit. "The first time he saw a white bus driver order a black man to sit at the back of the bus, he nearly had a stroke," Mr. Boyd said of the late Mr. Jackson, who was a Harvard graduate, the son of a Harvard graduate and the brother of a Harvard graduate. "He just couldn't take it -- or any of the separate-but-equal laws of the South." Early on, Mr. Mack tried to protect his sales force by insisting the black representatives travel in Pullman cars, so that they could dine and sleep by themselves. But even having the black salesmen traveling in the special, high-priced sleeping cars offended some people. "The conductor would come and pull down the shades so the whites couldn't see the blacks," Allen McKellar, a member of the special-markets team, recalled. The white business leaders who hired black salesmen in the 1940s and 1950s also had to be careful. They wanted the black customer's dollar, but companies seen as pandering to African-Americans -- by donating to their communities, selling them products and hiring black professionals -- were often shunned by white consumers. Even Mr. Mack, who seemed sincere in his efforts to forward racial equality, mostly confined his boasts about pro-black business initiatives and charitable programs to the black press, away from the mainstream.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 17 of 36 At one bottlers' convention in New York in 1949, Mr. Mack went so far as to tell the bottlers, "We're going to have to give Pepsi a little more status, a little more class -- in other words, we're going to have to develop a way whereby it will no longer be known as a nigger drink," recalled Mr. Russell. Mr. Boyd confirmed his recollection. A seething Mr. Boyd walked out on his boss from the front row, and later received a personal apology from Mr. Mack. "I didn't forget it, but I didn't hold it against him, either," Mr. Boyd said. In a statement yesterday, a PepsiCo spokesman said about the incident: "It's an appalling and completely unacceptable comment, with as much sting today as it had 60 years ago. Hopefully, starting with Mr. Mack's apology in 1949, and nearly six decades of positive actions we've taken since, we've shown PepsiCo's true commitment to diversity." A New Look The so-called Negro marketers helped bolster sales at Pepsi-Cola during its most troubled times. But they also helped define the concept and strategy of niche marketing and were instrumental in changing the way African-Americans were portrayed in advertising. Instead of stereotypes -- from Aunt Jemimas and Uncle Bens to offensive caricatures of bare-bottomed children -- the Pepsi ads that appeared in the black press showed African- Americans as stylish, fun-loving, middle-class consumers living the American Dream. Mr. Boyd hired some of the first professional black models. "I kept saying, I wanted to make something impressive," he said. He launched three major press campaigns from 1948 to 1951. For the first, he found accomplished African-Americans to profile for a "Leaders in Their Fields" series -- about 20 names in all. The campaign compared the professionals with Pepsi, a "Leader in Its Field." It began in April 1948 with United Nations diplomat Ralph Bunche. That series was complemented in the upstart Ebony magazine by a seven-ad series drawn by award- winning African-American cartoonist Jay Jackson, known for his biting satire of racists and red-baiters. For his third series, Mr. Boyd took a crew to the campuses of black universities to photograph top students enjoying Pepsi. Finally, Mr. Boyd was ready to tackle the displays in stores selling the soft drink. He wanted to make a splash with a colorful point-of-sale advertising piece showing a black family, and thought a friend's son would make a perfect model. The seven-year-old was handsome, bright and full of energy. His real-life father, William Brown, was the new manager of a hotel in Harlem. "Ronnie used to run around the Theresa hotel, in and out of the bar, greeting people," said Mr. Boyd with a grin. "He was very precocious. We were concerned he'd come to no good." To everyone's surprise, when it was the young boy's turn to pose for the shoot, he was poised, cooperative and professional. He did his shoot, smiling and reaching up for a six- pack of Pepsi held by his "mother," a popular new model named Sylvia Fitt. The result was a handsome tableau of a middle-class African-American family enjoying a meal and Pepsi. The boy was Ron Brown, who grew up to become secretary of commerce in the Clinton administration. The ad campaigns were a hit. Thousands of individuals and schools asked for reprints of the Leaders series to use as educational tools. Mixed Results

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 18 of 36 But the Pepsi-Cola hiring experiment had mixed results. In the end, one team member who stayed on at Pepsi-Cola, the late Harvey C. Russell, became a vice president in the company in 1962, the first African-American ever promoted to that title at a major corporation. (Jackie Robinson, the baseball star, had been made vice president of smaller Chock full o'Nuts in 1957.) A handful of other team members had long and lucrative careers at Pepsi-Cola. But most of the team members complained they were never considered for other positions around the company. The experiment came to an end after Mr. Mack left the company and was replaced by Alfred N. Steele, a former Coca-Cola executive and the future husband of actress Joan Crawford. (Mr. Mack died in 1990 at the age of 94. Mr. Steele died in 1959 just short of his 58th birthday.) The new boss was more focused on building up the company and expanding its reach overseas than on workforce diversity and marketing to minorities. Embracing the decentralization trend in management popular at the time, he saw no need for a New York-based special-sales division. In a broad reorganization in 1951, Mr. Steele fired Mr. Boyd and had his team members dispersed to offices around the country. In those offices, the salesmen succeeded only as far as their managers believed in the need for niche marketing to boost profits locally. Most of the men quit soon after. One of the most educated found himself mopping floors for a time, but all eventually went on to remarkable second careers: Ed Boyd joined the international aid agency CARE in the Middle East, for example. Charles Wilson studied medicine in Geneva and became a doctor. Julian Nicholas, who stayed long enough to be promoted to national head of special markets, left in 1963 to work for the State Department and the protocol offices of the administrations of President Johnson and President Carter. Jean Emmons earned a Ph.D. in education and became a career superintendent of schools. All the way, they continued to break down color barriers to their careers. Mr. Boyd proudly takes credit for helping open the door to diversity. "It was a contribution to social progress," said Mr. Boyd of his work at Pepsi. "I didn't make that much of a dollar. I wasn't paid on the basis of other executives. It was at the beginning."

12. Early Pepsi ads that appeared in the black press showed African Americans as _____. a. soldiers in battle b. agricultural workers in fields c. steel workers in factories d. middle class consumers living the American Dream Correct

How Plastics Went From Byword to Bye By KATHRYN KRANHOLD January 10, 2007; Page B1 http://online.wsj.com/article/SB116839981581272248.html

Forty years ago, the future seemed to belong to plastics, as captured in the one--word career advice offered to the young Benjamin Braddock in "The Graduate." Plastic was replacing glass, metal, and wood in products ranging from milk cartons to furniture to automobile parts.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 19 of 36 At General Electric Co., a young manager named Jack Welch was making his name creating a market for new materials, such as Lexan, a hard plastic invented by a GE scientist in 1953. When astronauts Buzz Aldrin and Neil Armstrong walked on the moon in 1969, they wore helmets made with Lexan. Today, plastic isn't as special. Its makers are caught between the high cost of their raw material -- oil-based benzene -- and the low price of the final product, ceding ground on basic plastics to lower-priced rivals. And the man who succeeded Mr. Welch as GE chairman, Jeffrey Immelt, is shopping all or part of GE's plastic business for as much as $10 billion. The move to sell the unit is "pure supply and demand," says J.P. Morgan analyst Stephen Tusa. "While there are some new specialized products, the majority of the products do not add enough value for customers to pay a premium." If the sale is completed, it will be Mr. Immelt's latest move to reshape GE's portfolio since taking over in 2001. He's sold slower-growing heritage business like industrial diamonds and motors, while tapping markets such as oil-and-gas equipment, water treatment, security technologies, and computerized medical records. He's also moved GE, which already owned NBC, deeper into entertainment by acquiring the Universal film studio. Plastic was once a sexy high-growth business at GE, as the conglomerate acquired specialized manufacturers and opened factories in foreign countries to tap new markets. Mr. Welch says in his autobiography that he chose to work in the plastics unit, which GE created in the 1930s, because it was developing new composites. His first position in 1960 placed him alongside Daniel Fox, who had invented Lexan. In an incident immortalized in a GE ad, Dr. Fox discovered the plastic while brewing a batch of polymers that cooled and hardened with a steel stirring rod sticking out of it, forming a kind of mallet. “We kept it around the laboratory and occasionally used it to drive nails. It was tough," Dr. Fox, who died in 1989, once said. In addition to space gear, Lexan was used early on in the windshields of fighter jets and the first compact discs. In 1964, GE developed Noryl, a blended plastic used in products such as electrical coatings in televisions, and later in computer hardware. Mr. Welch became general manager of the unit, with its headquarters on Plastics Avenue in Pittsfield, Mass., in 1968. Noel Tichy, a University of Michigan professor who once led GE's management school, says Mr. Welch created an entrepreneurial business culture in his decade at the plastics unit, taking philosophies honed there with him when he went on to run GE. Mr. Tichy says that Mr. Welch "had to convince the automotive makers that they should consider plastic parts for the cars." Car makers are now one of the unit's biggest clients. When Mr. Tichy wrote in the 1990s on the changes GE would have to make to thrive in the first half of this century, "I certainly didn't predict plastics would be one of them." The plastics unit has long been a training ground for other top GE executives as well. Mr. Welch rotated his top managers through the division from Mr. Immelt to John Rice, now a GE vice chairman. In the 1970s, Mr. Welch named Robert Wright to head up strategy at plastics, before Mr. Wright went to run the company's media business, now NBC Universal. Mr. Immelt worked in the plastics unit for six years in the 1980s, and five more years in the 1990s before taking over the medical division. In the plastics unit, Mr. Immelt saw

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 20 of 36 first hand some of the problems plaguing the business today: At one point, he missed his profit targets partly because of high material costs. Over the past few years, Mr. Immelt has pushed for new specialized plastics to distinguish GE from competitors, including light-weight materials for cars. General Motors Corp.'s Chevrolet Volt prototype battery-powered vehicle uses GE resins extensively, including in its doors, hood, roof, and fenders, and wire coatings. GE says those materials helped to cut the weight of the car in half. GE's Lexan has moved into new markets too. The roof of the new Shanghai Rail Station -- 65,000 square yards -- is made of the clear plastic. But these moves haven't been enough to combat a growing number of competitors, particularly in Asia. The plastics unit has also been hurt by the slowing automotive industry. Growth has slowed dramatically at plastics. In the first nine months of last year, the plastic unit had $5 billion in revenue, and operating profit fell 13% from the prior year. GE continues to pursue new technology in plastics, investing $156 million in 2005. Last fall, GE said it would expand factories that make specialty plastics in the U.S., Spain and the Netherlands, while cutting back on basic plastics. It also continued to acquire modest- size plastics companies. The unit has 11,000 employees in 60 locations world-wide. Analysts expect interest in the unit from both private-equity firms and strategic players including Dow Chemical Co. and German chemical company, BASF AG, one of the largest suppliers of plastics. Saudi Arabian company Saudi Basic Industries Corp. has also expressed interest, according to a report by Citigroup analyst Jeffrey Sprague. Analysts say private-equity buyers might be able to make the unit more profitable by cutting costs more sharply than GE is willing to do. The auction, however, is at a early stage, and GE could still decide to spin off the unit if it isn't happy with the offers. In a conference call last fall, when asked about the future of the plastics businesses, Mr. Immelt said, "while we're in them, we run them hard."

13. GE chairman, Jeffrey Immelt, wants to sell GE's ______for as much as $10 billion. a. light bulb business b. plastics business Correct c. jet engine business d. electronics business

Can Delta Win Battle to Keep Flying Solo? By COREY DADE and SUSAN CAREY January 11, 2007; Page B1 http://online.wsj.com/article/SB116845481653672856.html

In the two months since US Airways Group Inc. announced its hostile bid for Delta Air Lines Inc., the embattled carrier has mounted a high-octane campaign of grass-roots organizing and fierce political lobbying to try to stay independent -- but all that has succeeded in doing is attracting a higher offer and a potential new suitor. Yesterday, US Airways increased its bid to $10.3 billion, up 20% from its original proposal, while people familiar with the situation said there have been recurring talks between Delta and Northwest Airlines Corp. about the two combining when each

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 21 of 36 emerges from bankruptcy later this year. While Delta maintains its insistence that its future is brightest as a stand-alone carrier, the talks with Northwest suggest that Delta executives are grappling privately with how much more the airline can afford to pay to creditors to remain independent. Northwest has emerged as a "promising third option," according to one person familiar with the matter. (Delta's bonds strengthened on the news and the carrier could find itself in an auction. Northwest is expected to file its preliminary plan of reorganization in the next few days, and has been out raising equity capital to help fund the company once it leaves Chapter 11 in the second quarter. Northwest last month hired investment banking and restructuring advisers Evercore Partners Inc. to help it evaluate and possibly implement a merger, acquisition or other business combination. Delta has also run the numbers on a potential merger with Northwest and continues to update the calculations as the two companies' reorganizations progress, according to a person with knowledge of the matter. Delta's creditors committee has directed its advisers to do the same and will meet with the airline in the coming days, another person said. An important question for Delta's creditors: Does it make sense to pursue a merger in bankruptcy, which could extend Delta's stay in court protection and hamper business, or would the airline be better off weighing a combination once it emerges in April? After waiting weeks to mount a counterattack against the original offer, Delta has become relentless in trying to defeat US Airways, using tactics ranging from 40 million e-mails to frequent fliers to "Keep Delta My Delta" buttons worn by airline employees. US Airways Chief Executive Doug Parker said the efforts to fan opposition to the takeover haven't tilted the odds against his airline. "I don't believe that's the case at all," he said. Still, Mr. Parker said last week that he wasn't considering increasing the Tempe, Ariz., airline's initial offer because it was obviously superior to a restructuring plan proposed by Delta last month. But it became clearer since that creditors were "wrestling" with the two offers, he said yesterday. J.P. Morgan analyst Jamie Baker wrote in a research note last month that Delta's "hard sell" has slightly improved its chances of remaining independent, though he expects the company will eventually succumb to US Airways or another merger partner. The sweetened offer will test fragile allegiances Delta has been forging with pilots, other employees, customers and political leaders who were squeezed for concessions by Delta as it tumbled into bankruptcy in 2005. If it decides to increase its go-it-alone bid to creditors, Delta might be forced to shrink the amount of equity and profit-sharing that employees stand to get under the airline's current turnaround plan. US Airways set a Feb. 1 deadline for its latest offer, comprised of $5 billion in cash plus 89.5 million shares of US Airways common stock. That likely will force creditors to start making up their minds sooner than the Feb. 7 bankruptcy-court hearing where Delta had hoped for approval to start asking creditors to vote on its plan. Yesterday, US Airways shares rose $1.03, or 1.8%, to $58.93 in New York Stock Exchange composite trading at 4 p.m., putting the value of the US Airways bid at $10.27 billion. In a memo to employees, Delta Chief Executive Gerald Grinstein said the enhanced offer fails to "address serious concerns," including Delta's claim that the merger would cost thousands of workers their jobs and can't clear antitrust hurdles. The deal also would "increase the debt burden of the combined company by yet another $1 billion," he added.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 22 of 36 To regain momentum for independence, Delta must now ratchet up its lobbying and organizing efforts while simultaneously giving creditors what they want most of all: more money. Delta is considering inviting a private-equity firm to invest in the airline, finding deeper cuts as part of its stand-alone restructuring plan or merging with someone other than US Airways, according to people familiar with the situation. Delta's recent campaign is a sharp contrast with its flat-footed response to the original bid two months ago when Mr. Grinstein heard about it on the radio as he dressed for work. Mr. Grinstein's communications director had recently resigned, leaving behind a thin staff. And while US Airways approached Delta twice before going public with its hostile bid, Delta said little about the surprise offer for several days. Instead, executives kept their daily schedules. Behind the scenes, Jim Whitehurst, Delta's operating chief, pressed Delta officials to fight toe-to-toe with Mr. Parker, arguing that Delta would win if it engaged creditors and other groups aggressively. Delta soon installed outside media consultant Cynthia Hudson, who helped during bitter pilot-contract negotiations, as temporary head of corporate communications, and turned to crisis-communications firm Kekst & Co. The New York company, which has worked with Delta for several years, helped Walt Disney Co. resist a takeover by Comcast Corp. in 2004. Since then, Delta executives and lobbyists have been making the rounds on Capitol Hill, with their efforts gaining enough traction to force a Senate Committee on Commerce, Science and Transportation hearing Jan. 24 on the merger's potential impact on competition and customers. Mr. Grinstein, who has visited lawmakers personally, is expected to testify. Meanwhile, a Delta employee group has been using part of its annual funding from the company to finance its "Keep Delta My Delta" campaign, which began the day after the bid.

14. Delta Air Lines is the target of a hostile takeover by ______. a. Walt Disney Co b. US Airways Correct c. Northeast Airlines d. Northwest Airlines

Super Bowl Advertisers Hand Amateurs the Ball By BRIAN STEINBERG January 12, 2007, Page A1 http://online.wsj.com/article/SB116856806277874702.html

Super Bowl advertisers, who pay as much as $2.6 million to air a 30-second spot, usually have good reason to leave the creation of their ads to the professionals. But with all the current buzz about "user-generated content" on Web sites like YouTube and MySpace, next month's game will feature three ads designed either completely, or in part, by ordinary people. PepsiCo Inc.'s Doritos, General Motors Corp.'s Chevrolet and the National Football League have run contests inviting average people to submit ideas -- or in the case of Doritos, the actual ads -- for the game.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 23 of 36 That doesn't mean Super Bowl viewers will see the raw, jerky footage common to amateur videos on the Web and cable channels that use consumer contributions. Some of the advertisers have dropped hints about the ads they plan to air -- they are expected to look much the same as the rest of the multi-million dollar spots running on the broadcast. The Super Bowl contests show the challenge facing advertisers in using consumer- generated content. Marketers like the idea of letting the public help make ads, in hopes of creating spots that resonate more with their audience -- particularly young people who tend to be turned off by slickly produced spots. But marketers are also reluctant to give up control, concerned about the image their ads project. "Consumers are much wilder than the agency or the client would ever want them to be," says Alex Bogusky, chief creative officer of MDC Partners Inc.'s Crispin Porter + Bogusky. "The stuff they create is potentially terrifying to a client." Each advertiser imposed guidelines on the submissions, to ensure the ads weren't vulgar or obscene and were in keeping with the image they want to convey. Chevrolet, for instance, told contestants that proposed ads must end with the tagline, "Chevy, An American Revolution." The tone had to be "approachable, not arrogant or offensive." In all of the contests, the main prize is getting an ad on TV but there are other perks as well; Doritos finalists, for example, also get $10,000. Most of the top entries didn't come from complete amateurs. The NFL contest, which drew 1,700 entries, was won by a Portsmouth, N.H., man who was working for a sales and marketing firm. Doritos' top five entries -- which can be viewed on a Doritos Web site -- came mainly from aspiring or experienced filmmakers who were mostly older than the brand's 18-to-24-year-old target audience. Chevrolet opened its contest only to college students. While some marketers that have tried the consumer-generated technique in the past couple of years have been pleased with the results, others have seen it backfire. Chevrolet last year ran a Web promotion for its Tahoe vehicle that allowed consumers to add their own text to video clips of the automobile. Some people chose to make critical gibes about the car. A Chevrolet spokesman acknowledged that the company received some things that "were a little untoward," but he noted "if you never push the envelope, you never learn, you never progress." The Super Bowl, which airs Feb. 4 on CBS, is a particularly tough venue for experimentation. The game is regularly the most-watched TV program of the year, usually drawing roughly 90 million people in the U.S. And the ads that air during the broadcast have traditionally been as much of a draw for viewers as the sport. As a result, marketers usually take more care with Super Bowl ads than any other TV spot. While Doritos invited people to submit completed ads, Chevrolet and NFL were looking only for ideas -- with the winning entries to be produced by professionals. Students entering Chevy's contest, for instance, had to submit their ad ideas in a professional layout to be judged by a group of executives from Chevrolet and its ad agency, Campbell-Ewald, a unit of Interpublic Group. The NFL, which has run a Super Bowl spot since the mid-1990s to promote NFL football, invited fans to submit ideas to be judged by NFL marketing staff with some input from members of the public voting online. Of the three, Doritos took the most hands-off approach, perhaps in keeping with its younger image. Doritos was prepared to consider anything, says Ann Mukherjee, a vice

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 24 of 36 president of marketing at Pepsi's Frito-Lay snack division -- even a spot showing somebody trashing Doritos, for instance. Part of the success of the idea, she says, is "the genuineness of letting people express themselves." Finalists were picked based on originality, creativity and the "passion" they showed for Doritos, she says. Still, despite getting more than 1,000 entries, all of the spots in Doritos' final five could easily be mistaken for a typical, professionally produced Super Bowl spot. One, devised by a 42-year old wedding photographer, Jared Cicon, shows a man falling off a cliff while clutching a bag of Doritos -- and trying to eat all the chips before he hits the ground. (In the end it turns out he's dreaming.) Mr. Cicon says two of his sons held up air-compression hoses to his face to simulate how it would look while falling through the air. The winning entry won't be revealed until Super Bowl night, when Doritos broadcasts the ad. In 2005, the average national 30-second spot cost $381,000 to produce (buying ad time is a separate cost), according to the American Association of Advertising Agencies, an industry trade group. But Super Bowl ads, often making use of celebrities and high-end special effects, would cost much more than the average. Mr. Cicon estimates the shoot for the Doritos ad that made it to the finals (he submitted nine in total) cost around $150 to produce. Mr. Cicon says he has an edge over big ad agencies -- he can film, edit and even act. "I don't have the overhead," he says. "I don't have all the logistics that some companies tend to create for themselves over time, and the red tape."

15. Super Bowl advertisers, pay as much as _____ to air a 30-second spot. a. $.6 million b. $1.6 million c. $2.6 million Correct d. $3.6 million

Questions 16 – 20 from Money & Investing

Will Housing Finally Bloom In Spring? By JUSTIN LAHART January 8, 2007; Page C1 http://online.wsj.com/article/SB116822680712169954.html

Investors might discover in the weeks ahead that calling a bottom in the housing downturn is a mug's game. Until last week, it had been looking to some like a bottom might be at hand. Then Tuesday, Lennar Corp. said it expected to show a large loss on the back of land write- downs of $400 million to $500 million. The home builder said it has yet to see "tangible evidence of a market recovery." Thursday, the National Association of Realtors said its index of pending home sales, which is based on how many sales contracts have been signed in a given month, slipped in November. The Dow Jones index of home-building shares fell 4.3% last week. This is a slow time of year for the housing market. Little wiggles in actual activity can look bigger after statisticians make their seasonal adjustments. A warm January can

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 25 of 36 distort the view even more. Home builders say they won't know for sure if the downturn is over until the spring, when seasonal activity picks up. Here is one reason to be careful about calling a bottom now. A large number of homes for sale are unoccupied. In the third quarter, there were 5.7 million vacant housing units for sale or rent, accounting for a record 4.6% of all U.S. homes. The average in the 1990s was about 3.5%. To get this ratio back to normal, 1.3 million vacant homes would need to be occupied. For comparison sake, economists polled by Blue Chip Economic Indicators expect construction to begin on about 1.6 million homes this year. With so many empty homes out there, one wonders why builders would bother breaking ground on new ones. High vacancy rates have other effects, points out Credit Suisse analyst Ivy Zelman. When an occupied home gets sold, the seller has to buy or rent another house. That sets off a chain reaction that ripples through the housing market. When a vacant home gets sold, the seller doesn't have to do anything. The owners of those unrented, unsold homes bear costs. They have got insurance, the lawn guy, taxes and, often, a mortgage to pay. Seeing those costs pile up can motivate an owner to sell or rent at much lower prices. When a house sells at a lower price, other would-be buyers expect lower prices as well. When it rents for less, it becomes a more- attractive alternative to buying. The good news (yes, there is good news) is that trouble in housing hasn't spelled trouble for the rest of the economy. Friday's jobs report showed that. Even though there was a decline in the number of construction jobs in December, a big pickup in service-sector jobs more than offset the drop. Wages rose, too. Meanwhile, low interest rates give households more buying power. But the longer the housing funk lasts, the more likely its impact will spread. Here is hoping that in the spring there will be growth. Until then, be careful.

16. A key variable that makes it difficult to predict the bottom of the slow down in housing is ______. a. declining interest rates b. a large number of unoccupied homes for sale Correct c. a big pickup in service sector jobs d. high rental rates

Shares Bought in the Dark By AARON LUCCHETTI January 9, 2007; Page C1 http://online.wsj.com/article/SB116831491827571061.html

A Supreme Court jurist once wrote that sunlight is the best disinfectant. Wall Street, though, is increasingly finding it more profitable to work in the dark. In the past few years, large brokerage firms, trading boutiques and even stock exchanges have launched or announced plans to start almost 40 trading networks known as "dark pools," named because they attempt to put buyers and sellers together anonymously

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 26 of 36 without exposing their clients' orders first to the public, as happens on traditional stock markets like the New York Stock Exchange and Nasdaq Stock Market. The pools have proliferated as big institutional investors respond to the boom in electronic trading and seek out alternatives to middlemen like floor traders. They have also become more popular as stock exchanges look to increase their fees to boost profits, causing some traders to search for alternatives. The Securities and Exchange Commission and others, though, are voicing concerns about dark pools, which while only representing about 5% of stock-market activity, have tripled in volume since 2004, according to consulting firm TowerGroup. At a trading conference in September, SEC officials said they would increase scrutiny of dark pools, including a review of how they are used by sophisticated players like hedge funds and proprietary Wall Street trading desks. "Calling them 'dark pools' is just calling for regulation," said John A. McCarthy, a lawyer at a Chicago trading firm who at the time worked as an associate director at the SEC. Critics of dark pools say the rapid growth could lead to less competitive trading prices for small investors who buy and sell the old-fashioned way -- on open markets such as the Big Board and Nasdaq. Brokers are generally required to offer their clients the best available published price, something that will become harder to define if dark pools grow further, because shares are bought and sold in the dark, and the price is only posted after the trade has been completed. Here's how the pools work: Trades are matched up with other orders on a proprietary system that outsiders can't see. Within 90 seconds, the trades are required to be reported publicly. (Most are reported in a second or two.) Investors with big positions tend to favor dark pools because they don't have to expose their trading intentions to all market participants. Floor trading is more transparent, but players can still mask their strategies. For instance, a floor broker may break up an order and sell it in pieces, keeping the magnitude of the trade hidden from the market. Dan Mathisson, managing director of electronic trading at Credit Suisse Group, says if Wall Street didn't have dark pools it would be like "asking people to play poker with the cards face up." In most dark-pool trades, the prices are usually slightly better than what is available in the general market. Dark pools typically charge higher fees than exchanges, but the customer often ends up saving money when the better price is factored in. Dark pools started in the 1980s as firms like Investment Technology Group Inc. and Instinet Inc. designed networks to make trading easier for big investors. These players -- primarily pension funds, mutual funds and some bigger hedge funds -- wanted to buy and sell big blocks of stock without pushing prices around, which often happens when they make big purchases or sales on the open market, something they argue can hurt a big investors' overall performance. For years some Wall Street firms have crossed orders on their own systems, a practice known as internalization, which now is increasingly happening in dark pools. Many Wall Street heavyweights, including Goldman Sachs Group Inc., Credit Suisse Group and Morgan Stanley now operate dark pools, as do Nyfix Millennium ATS, Liquidnet Holdings Inc. and Pipeline Trading Systems LLC.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 27 of 36 Still, regulators are looking into dark pools "because they're not transparent," says Robert Hegarty, managing director at TowerGroup. "They want to make sure the individual investor isn't disadvantaged." The concerns are twofold: making sure all investors get equal access to buy and sell at the best price and linking the burgeoning number of dark trading platforms so that investors can be confident that they are getting a good price when they trade. For years, the Big Board, now a unit of NYSE Group Inc., argued that brokers executing trades in their own dark pools led to less-competitive prices for investors. But now, exchanges that are losing market share to these alternate trading venues have started moving toward their own version of dark pools, launching anonymous crossing sessions throughout the day. NYSE has only said it will do such sessions outside of the 9:30 a.m.- 4 p.m. EST trading day, but it is exploring expanding the sessions to regular hours. The evolution in thinking reflects the Big Board's effort to appeal to "a wider spectrum of clients," says Mike Cormack, an NYSE executive vice president. He says the individual investor is still protected by SEC rules and because only a small part of the business takes place in dark pools. At Nasdaq, dark pools known as crossing auctions are offered at the beginning and end of trading, and more are being added throughout the day. In the electronic sessions, orders pile up anonymously and then are executed at a single price in between the best advertised bid and offer. This system is appealing to investors who don't want their order displayed to the broader market.

17. In the past few years, large brokerage firms, trading boutiques and even stock exchanges have launched or announced plans to start almost 40 trading networks known as ____ named because they attempt to put buyers and sellers together anonymously a. serial pools b. big pools c. dark pools Correct d. anonymous pools

Economy Looks Strong? Credit Warm Weather By JUSTIN LAHART January 10, 2007; Page C1 http://online.wsj.com/article/SB116839438414972183.html

The economy is heating up. Literally. With average U.S. temperatures 3.7 degrees higher than normal, last month was one of the warmest Decembers on record. It followed one of the warmest Novembers ever and the trend continues so far in January. Typically, many areas of the economy are subdued during the winter. Cold weather and snow cut into the number of hours workers put in. Many workers, like home construction workers, don't have jobs at all. This year's warm weather means economic activity that would normally be put off until spring is happening now instead, says Goldman Sachs economist Ed McKelvey. That is probably going to make economic indicators look artificially strong.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 28 of 36 Consider housing. Builders don't break ground on many new homes in the winter. To avoid having their charts bounce around unintelligibly because of seasonal swings, government statisticians adjust winter housing starts figures upward so December is comparable with May. But if warm weather keeps more construction crews on the job, the adjusted figures could indicate a level of housing activity that isn't really there. On the other side of the ledger, the warm weather has made some retailers suffer. This hasn't been a good winter for selling sweaters and other cold-weather fare -- one reason why many apparel stores have posted tepid sales. But the money that shoppers don't spend on sweaters probably gets spent on other items, says Northern Trust economist Paul Kasriel. "If I don't have to buy the snowblower, I'll buy something else," he says. "All things considered, I'd rather have a big-screen TV." Mr. Kasriel thinks the warm-weather boost to economic activity will prove illusory. If he's right, investors who trust the latest economic figures could discover they didn't know which way the wind was really blowing. There is a bright side to warm weather that could prove more lasting. Despite OPEC's best efforts to push oil prices higher with production cuts, the weather has triggered a selloff of crude. Eventually, of course, temperatures could drop and send oil prices higher. But gasoline is another story. Typically in January, refiners are busy pumping out heating oil to meet high demand. This year, due to an unseasonably warm winter in the Northeast, which consumes the majority of U.S. heating oil, refiners have cut back on heating-oil production and are making more gasoline, getting a head start on the peak summer driving season. Refiners are also getting a jump on seasonal repair work, and Gulf Coast refiners have less repair work to do after a tame hurricane season. Last week, the Energy Information Agency, in its weekly inventory report, said gasoline stockpiles rose by 5.6 million barrels, well above the 1.1 million increase forecast. The EIA issues its weekly report today, and stockpiles are expected to rise again. Gasoline inventories are by no means bubbling over. At 210 million barrels nationwide, stockpiles are at about the same level they were a year ago. But if current trends continue, that might change, resulting in lower prices at the pump this summer -- and more cash in consumers' pockets.

18. This year's warm weather means economic activity that would normally be put off until spring is ______. a. happening now Correct b. being canceled c. delayed until next winter d. costing double

How Wall Street 'Sweeps' the Cash By RANDALL SMITH January 11, 2007; Page C1 http://online.wsj.com/article/SB116847447287273191.html

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 29 of 36 The phrase "cash sweep" may sound like a cleaning crew gathering loose change. But on Wall Street, the top brokerage firms are increasingly turning cash sweeps into gold. The blue-chip securities firms are reaping bigger profits from a few simple changes to how investors' idle cash balances are treated. And most investors either don't notice or don't care that Wall Street's gains are coming at their expense as brokers turn around and reinvest the money for their own benefit at a higher rate. Merrill Lynch & Co., which pioneered such tactics starting in 2000, is expected to report next week that its profits derived mainly from reinvesting customers' cash will top $2 billion for 2006, up from $1.3 billion two years ago. Last year Morgan Stanley ramped up the same strategy of "sweeping" client cash to insured bank deposits, which pay rates as low as 1.25% on the smallest accounts. And the Smith Barney unit of Citigroup Inc. in September also began paying rates as low as 1.51% for cash in smaller accounts. Smith Barney had considered such moves earlier, but hesitated because its former chief executive, Sallie Krawcheck, who led the firm between 2002 and 2004, raised questions about whether such "tiering" tactics could hurt customers, according to people at Citigroup. This year the firm decided it couldn't afford to pass up the profits and risk being left at a competitive disadvantage, other people said. In a statement, Smith Barney said it shifted "to a relationship-based offering" that included "clear and abundant client disclosure." The firm said it offers rates "among the most competitive in the industry," and clients have "ample" alternatives. Regulators at the New York Stock Exchange warned firms and investors in 2005 that such programs risked being instituted "without fully appropriate levels of disclosure or customer consent." Bank deposits are more profitable for Wall Street because they can be reinvested at profits of roughly three to four times the fees on money funds. But the bank deposits where the money is swept all pay less than 2% annually for the smallest accounts, far below current money fund rates of 4.72%, where Wall Street firms could put clients' idle cash. Merrill has about $78 billion in bank deposits, which pay as little as 1.51% for small brokerage accounts. Last year, Morgan Stanley's total deposits rose to $13.3 billion from just $1.7 billion in 2005. James Gorman, who helped establish Merrill's program as a top executive of its brokerage force, took the top brokerage job at Morgan Stanley last March. Analysts estimate that such bank sweeps can be reinvested at a profit of 2% to 2.5% of balances. By comparison, fees and expenses for taxable money-market funds currently average 0.58% of assets, according to iMoneyNet, a newsletter publisher in Westborough, Mass. "One of the questions that has come up is why customers would put up with this," says Connie Bugbee, managing editor of iMoneyNet. She believes one answer is the inattention of customers who focus instead on which stocks to buy or sell. Indeed, brokerage executives say their own soundings confirm investors generally aren't focused or overly concerned about rates they receive on cash balances. Take Wachovia Corp. Its brokerage pays just 1% on bank-sweep cash for accounts with under $100,000 in assets and 1.3% for accounts under $250,000, while accounts with over $1 million get 4%.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 30 of 36 Joe Nadreau, director of client strategy, acknowledges the lower rates are "beneficial" to Wachovia, but notes they are just one element of its fees and costs in "the whole competitive fee landscape" in which larger accounts are inherently more profitable. One person familiar with Merrill's decision to move uninvested funds to bank deposits starting in 2000 said it was inspired partly by a strategy pursued even earlier by discount broker Charles Schwab Corp. Schwab had used its own interest-bearing account, effectively a Schwab IOU, as an alternative to money-market funds for client cash, earning a profit by reinvesting the funds at higher rates. Currently, Schwab and other online brokers earn more in interest income from cash balances and margin loans than from commissions. Amid the regulatory prodding, some firms send clients brochures about their sweep programs that include some cautions. But readers have to look closely to discern that they may suffer financially. The Merrill Lynch disclosure, for example, carries the bland headline, "Timely Reminder Concerning Yields on Deposits with the Merrill Lynch Banks and Certain Investment Alternatives." It says rates are "tiered" without saying plainly that small accounts get less. But it says the deposits are "financially beneficial" to Merrill Lynch, and a table indicates that accounts with less than $250,000 will receive just 1.51% and rates of up to 4.4% are available in money funds if clients speak with their broker. A Merrill spokesman said the tiers are part of "relationship pricing, which rewards those clients with larger asset bases for consolidating all of their business with the firm. The process is transparent and fully disclosed in writing to clients." Although the interest profits add up to a big number at Merrill, they are small for most of the firm's millions of brokerage clients, said one person at the firm. Its brokers are "encouraged" to discuss higher-interest options "to meet specific client needs," a Merrill spokesman said. A disclosure by Wachovia starts out upbeat, saying its cash sweep "allows you to earn a return on the uninvested cash balances -- for which no interest is otherwise earned or paid." But its fourth paragraph is a little more blunt. Wachovia, it warns, "may seek to pay as low a rate as possible."

19. The phrase "cash sweep" deals with the way idle ______are treated. a. bond transactions b. stock transactions c. credit card balances d. cash balances Correct

Banks' Cry: 'Give Us Your Cash!' By CLINT RILEY January 12, 2007 http://online.wsj.com/article/SB116856920483874717.html

The nation's banks and savings institutions are facing a severe deposit crunch. Total deposits as a percentage of assets on hand at the end of September at the country's more than 8,700 insured banks and thrifts reached the lowest level since the Federal Deposit Insurance Corp. was established in 1933. At the same time, the banking

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 31 of 36 industry's net interest margin -- the difference between the average rate banks earned on their interest-bearing investments and the rate they paid to fund those investments dropped to a 17 year low in the third quarter of 2006.

20. The nation's banks and savings institutions are facing a ______. a. mild lending drought b. severe lending drought c. mild deposit crunch d. severe deposit crunch Correct

Questions 21 – 23 from Personal Journal, Section D

How You Can Lower Your Credit-Card Rate By ANN CARRNS January 9, 2007; Page D1 http://online.wsj.com/article/SB116831841887671114.html

If you're annoyed by rising interest rates on your credit cards, you may have more leverage to fight back than you think. Heightened competition in the credit-card industry is giving card holders greater muscle to negotiate lower rates. While most credit-card companies say little publicly about their willingness to negotiate sweeter deals, some are agreeing to cut interest rates by several percentage points for their best customers. That can add up to thousands of dollars in savings over a year. Gay Watson, a spokeswoman for the Consumer Credit Counseling Service in Atlanta, called her local bank about six months ago after receiving notification that the interest rate on her MasterCard would climb to 14% from 12%. She typically pays her monthly balance in full but was mulling the purchase of a new computer and wanted the option of spreading her payments over a few months. The bank buckled, keeping the interest rate at 12%. "It took only a few minutes," she says. About a third of credit-card users have pressed for a lower interest rate, according to a September survey by Synergistics Research Corp. More than 75% of those who asked to pay less said they got their rate reduced. "Card issuers have few choices. They either agree to lower rates or lose relationships," says Genie Driskill, chief operating officer of the Atlanta research firm. The steep rise in interest rates led by the Federal Reserve over the past two years has been a boon to credit-card companies and a nightmare to many consumers. The average American adult carries more than three bank credit cards, according to CardWeb.com Inc., a card-research firm in Frederick, Md. Issuers have been particularly aggressive in pushing variable-rate cards, which carry an average rate of 16.6% as of last month, up from 12.5% at the end of 2004. In 2005, 11% of U.S. cardholders at major issuers were hit with interest rates of at least 25%, the Government Accountability Office found, compared with 5% in 2003. According to the GAO report, at least half of cardholders carry a balance; the six major card issuers reported that about half of their active accounts paid no finance charges for most of 2005.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 32 of 36 But the interest-rate rise also coincided with a period of fierce competition among credit- card issuers. Last year, Cardweb estimates, credit-card loans reached $745 billion -- an increase of 4.8% over 2005, but still far below the increases of five or six years ago. Because it usually costs more to attract new accounts than to hold on to existing ones, many card issuers are willing to sacrifice some revenue to appease upset cardholders. Lynn Murphy, who works with her husband in home construction and renovation in Little Rock, Ark., says she was able to wrangle lower rates on two different cards. Once last year, she was late on a payment on her Citibank credit card. She had a promotional APR at the time of no more than 1.9% on balances transferred from other cards, but the late payment caused the rate to spike to about 19%. When Ms. Murphy called to ask for leniency, she was transferred to a "retention" representative who declined to reduce the rate -- but did offer her the 1.9% rate on new purchases. "I'm not afraid to ask for something -- and they can always say no," she says. "But in my experience, they're very customer-friendly. If you're unhappy, they'll work with you." Ms. Murphy encountered a similar situation last month with her Discover card: She forgot to make a payment, which threatened her 0% introductory rate. But when she called to explain it was simply an oversight, the company reinstated the 0% rate as a courtesy -- along with a warning that it wouldn't relent a second time. Don't expect your bank to come to you with a cheaper deal -- or tell you how low it will go with its rates. Bank of America Corp., based in Charlotte, N.C. -- the nation's largest credit-card issuer -- wouldn't specify how often customers seek lower rates or how often it agrees to them. No. 2 issuer J.P. Morgan Chase & Co. and Capital One Financial Corp., known for its television ads, declined to provide details of their policies on negotiating with existing customers. Still, many credit-card companies acknowledge that the cutthroat market is prodding them to consider trimming interest rates on a case-by-case basis. J.P. Morgan "always [welcomes] the opportunity for customers to call us and have a dialogue," a spokesman for the New York bank says. Capital One emphasizes "great rates" in its initial offer, but "cardholders certainly can call us to discuss their account terms," according to a spokeswoman. American Express Co. will "listen to concerns about interest rates," spokeswoman Desiree Fish says, but relents "infrequently." At Bank of America, cardholders who call seeking a lower rate or threatening to bolt are quickly transferred to retention specialists, who are trained in what the bank calls "judgmental lending," empowering them to consider more than credit scores and payment records. For example, a higher interest rate triggered by a forgotten payment -- not financial problems -- might be lowered. "It's critically important to talk to these customers," says Matt Schlitz, head of customer retention for Bank of America's card-services business, adding that cardholders have become "much more savvy" about using their leverage. A Citigroup Inc. employee last week slashed the interest rate on an AT&T Universal Platinum Card to 10.8% from 20.3% for a reporter at The Wall Street Journal who was shopping for a better deal elsewhere. (The cardholder didn't identify herself as a reporter and contacted Citigroup through normal consumer channels.) Citi's employee also took the opportunity to pitch an identity-theft protection service costing $9.95 a month.

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 33 of 36 Citigroup spokesman Sam Wang said the bank handles requests for lower rates on an individual basis, "taking into account the cardmember's individual needs, the specific card benefits provided and the cardmember's credit standing." Success in lowering the rate varies based on factors ranging from payment history to balance size. Cardholders carrying balances from month to month are likely to have the best chance of winning lower interest rates, since the balance generates a steady stream of revenue from interest charges. Customers with missed payments typically have far less negotiating power. If you can't get a lower rate, you might want to transfer your balance to a lower-rate card -- but keep the original card account open, says Curtis Arnold, founder of the Web site CardRatings.com. Closing an account can sometimes harm one's credit score, he says, by increasing the proportion of one's total available credit that is being used.

21. About _____ of credit card users have pressed for a lower interest rate, according to a September survey by Synergistics Research Corp. a. 10 % b. 25 % c. 33 % Correct d. 50 %

Tax Report By Tom Herman The Tax Hit You May Not See January 10, 2007; Page D1 http://online.wsj.com/article/SB116838929882372057.html

Millions of people are paying taxes at higher rates than they probably realize because of tricky provisions that can reduce -- or even eliminate -- major tax breaks based on their income. These so-called phaseouts (because some benefits begin to phase out when your income exceeds certain levels) and similar provisions should be repealed, or at least simplified, said Nina Olson, the Internal Revenue Service's National Taxpayer Advocate, in a report to Congress released yesterday. Ms. Olson, who isn't a political appointee, heads an IRS unit designed to help taxpayers cut through red tape and deal with problems that typically couldn't be resolved through normal channels. The report says more than 60 million individual income-tax returns, about 44% of the total filed last year, are affected each year by one or more of these provisions, which can drive up a taxpayer's marginal tax rate well above his or her official tax rate. It's doubtful that Congress will eliminate phaseouts. Repealing them would cost the U.S. Treasury Department billions of dollars each year at a time when lawmakers are focusing more on cutting budget deficits than on simplifying the nation's notoriously complex tax system. Yet the report throws a new spotlight on a dimly lit corner of the tax world that many taxpayers need to understand more thoroughly in order to make intelligent tax and investment-planning decisions. Phaseouts are also referred to as "stealth" taxes because they're difficult for the average taxpayer to detect. Among the most significant: limits on personal exemption amounts and on many itemized deductions, such as charitable contributions and state and local taxes, for taxpayers whose income exceeds certain levels. (More than 5.7 million

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 34 of 36 individual returns for 2004 were hit by the income limit on itemized deductions. As a result, taxpayers were unable to deduct a total of more than $36.7 billion of itemized deductions for that year.) Other benefits that may be affected include a credit for adopting a child, the child tax credit and education-related incentives. A new deduction for mortgage insurance also has phaseout provisions. Even sophisticated taxpayers may be unaware of this issue since growing numbers of Americans are paying someone else to do their taxes for them. Last year, more than 60% of all taxpayers used paid preparers, up from 40% in the mid-1980s. And growing numbers of people rely on tax-preparation software to do the number-crunching for them. "Most of my clients are unaware" of the phaseouts, says Stephen W. DeFilippis, owner of West Suburban Income Tax Service in Wheaton, Ill., and an enrolled agent, which means he is licensed to represent taxpayers before the IRS. He says clients often are amazed their tax bill was significantly higher than expected.

22. Phaseouts are also referred to as ____ taxes. a. suburban b. education c. stealth Correct d. mortgage

Reasons to Hold Out Hope For Balancing Work and Home By SUE SHELLENBARGER January 11, 2007; Page D1 http://online.wsj.com/article/SB116847873189873270.html

The national mood on work-life issues is among the grimmest I've seen in 15 years writing this column. In poll after poll, most executives and employees report discontent with their work-life balance. But three trends now gaining momentum hold the potential for positive change. While these developments aren't universal and will benefit mainly highly skilled workers, they hold the promise of a little more control over when and where you work -- and some new tools to watch over loved ones while you do. Employers are worried about attracting skilled young workers, for whom control over their time is a powerful draw. After 13 years of helping workers set up alternative work arrangements, Pat Katepoo, owner of www.workoptions.com1, says managers are "recognizing they need to embrace" flexibility. What's hot is informal flexibility that allows employees to alter their hours or to work at home on a more casual basis. What's not: Rigid policies for specific flexible setups such as job-sharing or part-time work that are seldom used and damage the careers of those who do. Some work teams at Dell Inc. are eliminating firm office hours and handing employees control over when and how they achieve goals. In a pilot project, Dell last month took the unusual step of letting some manufacturing employees work part-time. Bank of America recently started a telecommuting program at two sites and plans to expand it. PNC Financial, Pittsburgh, is expanding a new-manager training program

© Copyright 2007 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 35 of 36 "debunking the myths around flexibility," such as the notion that employees who want alternative setups are slackers, says Kathy D'Appolonia, a senior vice president. It took Tammy Armistead, a Mequon, Wis., business analyst, just two weeks to get her bosses' approval to work a compressed four-day workweek; she uses the time to travel with her husband, a crew chief for a race-car team.

Two vendors are about to begin marketing in-home electronic monitoring systems to consumers. The systems track a resident's movements through wireless sensors mounted on walls, switches, doors, medicine cabinets or appliances, and alert 24-hour emergency- response workers of irregular activity patterns. Caregivers can monitor the systems via the Internet or request notification of irregularities via email, phone calls or text messages. Living Independently Group, New York, plans this month to start targeting working caregivers with cable-TV ads for its QuietCare system, says George Boyajian, executive vice president. The system will be priced at $199 to install and $79.95 a month thereafter. Lusora, Austin, Texas, also expects in the first quarter to start marketing its "Lisa" personal-security system, for $249 to install plus $50 a month, says COO Scott Gurley. Marguerite McCullough, 67, who lives alone in a Florida retirement community, had QuietCare installed after she spent five hours one night alone and helpless in her bathroom, disabled by a bad case of stomach flu. The system, which is set to alert her four children or a neighbor of any problems, "does give you peace of mind," she says.

Hard-pressed to recruit underwriters to its Hartford, Conn., headquarters city, Phoenix Cos. offered to let candidates work at home, says Senior Vice President Bonnie Malley. It has since hired five underwriters who telecommute and plans to expand its work-at-home outreach. Safeway used to require managers and trainees to transfer often to any location. Now, a new policy allows transfers within smaller regional groups of stores. The policy broadens its pool of recruits, a spokesman says, particularly those "who had strong connections to their communities." I'll track these trends and keep you posted on how they play out.

23. In poll after poll, most executives and employees report ______with their work-life balance. a. satisfaction b. contentment c. happiness d. discontent Correct