1 1 CFA l1 economics questions pdf

CFA LEVEL – ECONOMICS © 2019 AnalystPrep.com All rights reserved By AnalystPrep.com The Canadian dollar and the Euro share a common feature with most other major currencies in that: A They can be exchanged for a fixed quantity of gold B Their values relative to the UK pound and the US dollar float within tightly controlled bounds C These currencies have value only because of our shared willingness to accept them All else being equal, estimate the change in price levels if the money supply increases by 11% A Price levels will decrease by 11% B Price levels will increase by 11% C Price levels will increase at a faster pace (more than 11%) Suppose that the exchange rate between the Canadian dollar and the Brazilian real is BRL/CAD = 3.27 If the interest rate in Canada is 2.5 percent and the interest rate in Brazil is 8.0 percent, the exchange rate you should expect one year from today is closest to: A BRL/CAD 3.45 B BRL/CAD 3.10 C BRL/CAD 3.53 The effect of imposing additional emissions control requirements on electricity producers can be best characterized as a: A Leftward shift in the electricity supply curve B Leftward movement along the electricity supply curve C Rightward shift of the electricity demand curve Calculate the growth in potential GDP if the growth in technology, labor and capital is 2%, 3%, and 4% respectively Assume that national income allocated to labor compensation is 55% A 5.55% B 5.45% C 5.85% © 2019 AnalystPrep.com All rights reserved For an inferior good, if the price of the good falls in comparison to a normal good, the: A Income effect will reinforce the substitution effect leading to a larger increase in demand B Income effect will offset the substitution effect leading to a smaller increase in demand C Income effect will reinforce the substitution effect leading to a larger decrease in demand Suppose that for a manufacturer their total costsare currently greater than their total revenue In the short run, the manufacturer should: A Shut down B Shut down if fixed cost is greater than marginal revenue C Shut down if marginal cost is greater than marginal revenue Calculate the 4-firm Herfindahl-Hirschman Index of Tech Inc., Sun Systems, LiteC.org, and Git firms with market shares of 32%, 20%, 31%, and 17% respectively A 1.0000 B 0.2674 C 0.5171 Suppose the GDP deflator for Brazil was 120.0 in 2012 and 211.5 in 2017 This indicates an inflation rate of: A 9.8% B 15.3% C 12.0% 10 An economy is operating at full employment when the government eliminates sales taxes This will most likely result in: A Cost-push inflation B Supply-push inflation C Demand-pull inflation © 2019 AnalystPrep.com All rights reserved 11 If the economy is at or near full employment, a sudden and unanticipated reduction in the availability of a key resource such as electricity is most likely to: A Shift aggregate supply to the left resulting in higher GDP B Shift aggregate supply to the left resulting in higher prices C Shift aggregate demand to the left causing a higher price level 12 Weaknesses of the CPI as a tool to measure the rate of inflation include: A Overrepresentation of the purchases made by farmers and other rural residents B Failure to account for changes over time in the nature or quality of goods included C Over sensitivity to changes in gasoline prices 13 In November of 2008, Zimbabwe had an estimated monthly inflation rate of 79.6 billion percent If nominal annual GDP increased by 1,000 percent, then: A Real GDP also increased B Real GDP declined C The change in real GDP cannot be estimated without knowing the change in wages 14 Which of the following best describes a market structure with only one buyer? A Monopoly B Monopolistically competitive market C Monopsony 15 For the years 1981, 1982 and 1983, the year to year changes in the Canadian CPI were 10.0, 12.5 and 10.9 percent, respectively For 1984 and 1985, although prices continued to rise, the year to year changes declined to 5.8 and 4.3 percent, respectively The 1984 and 1985 changes most likely indicate a period of: A Disinflation B Deflation C Stagflation © 2019 AnalystPrep.com All rights reserved 16 A small island nation has the following economic characteristics: Account (in billions dollars) Government expenditures Current account balance Consumption Investment Capital depreciation allowance Exports Imports 100 350 10 10 The GDP of this country (in billions dollars) is closest to: A 456 B 449 C 447 17 Consider the following table for a country’s nominal GDP and corresponding GDP deflators Year 1995 2000 2005 2010 2015 Nominal GDP 290 310 360 342 375 GDP deflator 85 90 100 115 118 18 If the central bank reduces the reserve requirements and increases net redemptions (purchases) of treasury securities, then: A Banks would decrease acceptance of deposits, and the money supply would decrease B Banks would increase lending activities, and the money supply would increase C Interest rates would rise, and bank lending activities would decrease © 2019 AnalystPrep.com All rights reserved 19 A profit-maximizing monopolist should choose an output level and price such that: A Marginal revenue equals marginal cost and price exceeds average total cost B Marginal revenue is greater than marginal cost and price equals average total cost C Marginal revenue is greater than marginal cost and price is less than average variable cost 20 An analyst gathered the following national data (in thousands of U.S dollars) for a country for the year 2017: Exports of goods and services Investment income received from foreigners $6,500,000 $980,000 Imports of goods and services $3,500,000 Payments for purchased foreign financial assets $2,220,000 The country's account balance is closest to: A $4,240,000 B $1,760,000 C $6,200,000 21 For a manufacturer, if Total revenue is less than Total fixed cost plus Total variable cost (TR < TFC + TVC), then the most accurate statement is: A The firm must shut down in the long run B The firm must shut down if marginal revenue is greater than marginal cost C The firm should shut down immediately © 2019 AnalystPrep.com All rights reserved 22 Suppose the government is considering policies to address the prevalence of obesity through increasing gym memberships With respect to the market for gym memberships, if elasticity of demand is highly elastic, then it is probable that: A Providing a small tax benefit to gym membership purchasers will have a large demand effect B Providing a large cash subsidy to purchase gym memberships will have little demand effect C Increasing business taxes on gym operators will have little impact 23 The aggregate supply curve represents the relationship between the supply of output and the price level The distinction between short run and long run aggregate supply is necessary to allow for differences in: A Daily operations and the 5-year planning cycle B Firm’s inability to adjust the capital stock in the short run versus long run C Inflexibility of labor input in the short run 24 If banking is a competitive industry in which all banks are operating in ranges where they are facing substantial economies of scale, then we will most likely see: A More competitive pricing from smaller banks B Mergers and industry consolidation C Increased marketing spending from smaller banks 25 A look at the financial statements of a business based in Qatar reveals that for the most recent reporting period, revenue stood at $2 million It had total cost amounting to $2.5 million, which was comprised of TFC of $1 million and TVC of $1.5 million The reported net loss on the income statement stood at $500,000, disregarding tax obligations In prior periods, the business had consistently reported profits on its operations What decision should the management take regarding operations for the next few months? A Shut down operations since the business is already making losses B Minimize operations to cut TVC C Continue operations but attempt to borrow funds for the short term © 2019 AnalystPrep.com All rights reserved 26 Which one of these is more likely to create a demand curve shift in product B? A Unitary cost increases B Government tax policies C A change in consumers’ income 27 The price of a good has gone up from $41 to $45.As a result, the demand for the same good has gone down from 15,000,000 units to 14,000,000 units How would you best describe elasticity in demand for this good? A Elastic B Inelastic C The good has unitary elasticity 28 Aggregate demand is: A The potential output level of each labor force B The total supply of goods all firms plan on selling during a period of time C The demand for the gross domestic product of an economy 29 An economy in disinflation is: A An economy in hyperinflation B An economy where inflation decreases over time C An economy with a consistently negative inflation growth 30 According to the Fisher effect, a decrease in expected inflation will most likely decrease: A The real interest rate B The nominal interest rate C The real interest rate and the nominal interest rate 31 A country has the following characteristics: © 2019 AnalystPrep.com All rights reserved Exports of goods and services Investment income received from foreigners Imports of goods and services Investment income payment made to foreigners $14,000,000 $3,200,000 $11,430,000 $1,600,000 What is this country’s account balance? A $4,170,000 B ($970,000) C $970,000 32 All else being equal, if the Canadian dollar goes from USD 0.7 to USD 0.8, goods produced in Canada and consumed in the United States will usually be: A The same price as before for Americans B More expensive for Americans C Cheaper for Americans 33 A European company has recently received a payment of CAD 760,000 (Canadian dollars) The spot rate for CAD/USD is 0.8831 and the spot rate for EUR/USD is 1.2341 What is the amount the European company will receive in Euros? A $697,370 B $828,724 C $1,062,100 © 2019 AnalystPrep.com All rights reserved 34 The market demand function for item A is a function of its price, income and the price of item B Own-price elasticity of demand for item A -0.5 Income elasticity of demand for item A 0.4 Cross-price elasticity of demand for item A with respect to the price of item B 0.8 Given this information, which of the following statements is most accurate? A Demand for item A is elastic B Item A is an inferior good C Items A and B are substitutes 35 Company A has developed a new product and acquired a patent for the next 20 years It faces the following demand and cost schedules: Output (units) 10 20 30 40 50 60 Price/unit ($) 5,000 4,700 4,400 4,300 4,200 3,910 Company A’s optimal output level is closest to: A 50 units B 40 units C 60 units © 2019 AnalystPrep.com All rights reserved Cost (total $) 60,000 100,000 130,000 160,000 190,000 220,000 53 Ni-tech is an electric component manufacturer The exhibit below illustrates sales revenue, number of components sold, and GDP data for the years 2012 and 2013 2013 2012 GDP ($ millions) 45.85 38.63 Quantity sold 85,600 85,000 2.14 1.53 Average sales revenue ($ millions) Based on the data provided, the GDP deflator is closest to: A 118.69 B 138.89 C 139.87 54 In a perfectly competitive market, the slope of an individual firm’s demand curve is most likely: A Flat B Kinked C Positive 55 Martha Yates is an economic analyst studying the trading activities between Sri Lanka and the United States Sri Lanka is exporting tea to the US, and importing cars from the US The output per worker per day is summarized in the exhibit below: Cars Tea (grams) United States 100 Sri Lanka 350 © 2019 AnalystPrep.com All rights reserved Sri Lanka most likely has: A An absolute advantage in the production of cars B A comparative advantage in the production of tea C A comparative advantage in the production of cars 56 The following transactions were recorded in a country’s balance of payments account for the year 2013:  The total profit generated from outsourcing garment manufacturing to overseas factories amounted to $1.4 billion  The country’s engineering universities received a total grant of $40 million from overseas donors    The total amount of equity securities issued amounted to $1.2 billion Dividend income generated by citizens amounted to $0.3 billion Foreign fixed income holdings transferred to the country’s domestic financial institutions by migrants totaled $15 million  The tourism and travel industry generated revenues of $0.2 billion The country’s capital account balance amounts to (in $ billions): A 0.015 B 1.215 C 1.555 © 2019 AnalystPrep.com All rights reserved 57 Sasha Gibbons is an economic analyst who is evaluating the impact of changes in three factors on Nepal’s economic growth Gibbons has collected her observations in the exhibit below: Factor Observation The global price of oil has increased due to higher demand from industrialized economies The relative value of the Nepalese rupee relative to the dollar (USD/NPR) has increased in the current year due to a surge in foreign investments The Nepalese authorities have implemented a regulation mandating enterprises to undertake production worker training Considering each of the factors in isolation, which of the following statements accurately addresses the impact of the observation on the short-run and long-run aggregate supply curves? A Factor will shift the LRAS and SRAS curves rightward B Factor will not impact the SRAS curve but will shift the LRAS curve rightward C Factor will shift the SRAS curve leftward but have no impact on the SRAS curve © 2019 AnalystPrep.com All rights reserved 58 Mark Sinatra is a U.S equity investor with a global investment portfolio Sinatra’s portfolio currently comprises of North and European equities He would like to expand his portfolio and allocate $0.5 million to Japanese equities Information concerning current and expected onemonth spot rates is summarized in the exhibit below: Spot Rate Expected Spot Rate in One Month USD/EUR 1.3805 1.3759 JPY/EUR 0.0071 0.0089 The expected change in the USD/JPY rate in one month’s time is closest to: A – 20.49% B – 0.33% C + 25.35% 59 If the amount of money that can be created from an additional deposit of $200 in a deposit account is $2,500, the money multiplier is closest to: A 8.0 B 11.5 C 12.5 60 Industrial equipment will be typically sold in: A A factor market B A goods market C A capital market © 2019 AnalystPrep.com All rights reserved 61 A market has reached its equilibrium quantity if the: A Lowest price buyers are willing to pay is equal to the highest price sellers are willing to sell B Lowest price sellers are willing to sell and the highest price buyers are willing to pay are equal C Highest price buyers are willing to pay is higher than the lowest price sellers are willing to sell 62 Laura Martin, CFA, is a British investor currently holding Singaporean equities She is exploring arbitrage opportunities in the forward foreign currency market The current GBP/SGD spot exchange rate is 2.1050 She has devised the following strategy: Invest SGD for twelve months in risk-free zero coupon bonds at a rate of 4.5% At the end of the term, convert the SGD to the GBP at an agreed upon forward rate of GBP/SGD 2.0303 The return on the strategy in domestic currency terms is closest to: A 0.35% B 0.45% C 0.80% 63 In context of the gains from global trading, a country: A Decreases its welfare by solely focusing on producing the good in which it has a comparative advantage B Which does not have an absolute advantage cannot gain from trading goods in which it has a comparative advantage C Can earn higher trading gains if the difference between the world price of a good or service and the autarkic price is increased © 2019 AnalystPrep.com All rights reserved 64 The exhibit below illustrates the transactions in a country’s balance of payment account for the fiscal year 2015: Foreign remittances by nonresident citizens ($ millions) 14.5 Dividend income on foreign equity investments 8.6 Acquisition of natural gas extraction rights 2.5 3.4 Net exports of goods and services 22.7 Foreign-owned assets in the country 44.9 Based on the information provided, the current account balance is closest to: A $16.8 million B $45.8 million C $49.2 million 65 The government of a developing country intends to increase domestic savings by reducing the budget deficit The impact of the government’s proposed plans on the current account balance is most likely: A Neutral B A decrease C An increase 66 A key function of the International Monetary Fund (IMF) is to: A Ensure the stability of international payments B Regulate cross-border transactions on a global scale C Develop robust financial systems which support lending arrangements © 2019 AnalystPrep.com All rights reserved 67 A firm can increase aggregate supply in the: A Short run by increasing physical capital stock B Very short run without adjusting output prices C Long run by increasing wages in line with the aggregate price level changes 68 Ecrot is a manufacturer of computers The exhibit below highlights the aggregate sum of production for the firm as well as the quantity of labor employed in the process Labor (L) Aggregate Sum of Production 150 260 390 450 505 535 - Ecrot’s marginal return is maximized when the maximum number of workers employed is no more than: A B C 69 Janice Lee is a British investor seeking to purchase U.S small-cap equities in a year’s time The current GBP/USD nominal spot exchange rate is 0.9055 and is forecasted to rise by 8% while Lee expects her real purchasing power to increase by 15% by year end If the price of U.S goods is expected to increase by 3%, the British price level is forecasted to: A Decline by 3.27% B Decline by 15.00% C Increase by 30.87% © 2019 AnalystPrep.com All rights reserved 70 An exchange rate dealer based in France has quoted the following exchange rates: Exchange Rate Quotation EUR/USD 1.3718 EUR/GBP 0.8178 EUR/BRL 3.0214 Another dealer has quoted a USD/BRL cross rate of 2.8963 A French investor can exploit the arbitrage opportunity and earn a profit of: A USD 69,380 per BRL 100,000 traded B BRL 69,380 per USD 100,000 traded C BRL 124,846 per USD 100,000 traded 71 With respect to the impact of fiscal policy on aggregate demand: A Monetarists forecast the effects as powerful B Keynesians believe that the effect is only temporary C Keynesians forecast a powerful effect subject to the spare capacity in an economy 72 An economist has forecasted that a country’s economy can grow credibly over the long-term at a sustainable rate of 1.8% per year The country’s inflation target is 2.0%, and the central bank has announced its intention to implement an expansionary monetary policy To implement the stated policy, the policy rate should most likely: A Exceed 3.8% B Not exceed 2.0% C Not exceed 3.8% © 2019 AnalystPrep.com All rights reserved 73 Debora Eaton is analyzing money supply and demand in the nation of Nigeria Based on her preliminary findings, Eaton has determined that the interest rate where there will be no excess money balances is 6.5% Holding all else constant, if bonds offer an interest rate of 6.2%: A Bond prices will increase B Bond supply will increase C Individuals will decrease their money holdings 74 If the income effect dominates the substitution effect, the impact of higher interest rates on the level of savings is most likely: A Neutral B Positive C Negative 75 Recordia is a German seller of smart music players Recordia’s monthly supply of music players is given by the equation: Qssp = - 50.5 + 28.5Psp – 4.5W where Qssp is the number of smart music players sold, Psp is the price of players sold in euros, and W is the wage rate in euros paid by smart music player sellers to laborers The per unit price of a smart music player is €225 and wage is €13.50 There are currently five sellers producing smart music players identical to Recordia Based on the data provided, the slope of the aggregate market supply curve is closest to: A 0.007 B 50.500 C 142.500 76 A decrease in the price of a good is followed by a decrease in consumption if: A The good is normal B The income effect dominates the substitution effect and the good is inferior C Positive income effect dominates the substitution effect and the good is Giffen © 2019 AnalystPrep.com All rights reserved 77 The table below summarizes financial data for ABC Inc., which was incorporated on January 1, 2017 Total revenue ($) 38,560 Total economic costs ($) 25,315 Accounting profit 15,000 Cost of equity capital (%) 12% The level of accounting profit needed to cover the opportunity costs of capital is closest to: A $1,755 B $13,245 C $25,315 78 A fiscal policy may not be able to stabilize aggregate demand completely because: I Relevant data often appears well before a policy decision needs to be made II There is uncertainty on where the economy will be heading independent of policy changes III Private sector behavior may change as discretionary fiscal adjustments are announced A I, II and III B I and III C Only I © 2019 AnalystPrep.com All rights reserved 79 The table below illustrates economic data concerning Giyata (local currency, GT), a developing country in Africa (in million GT) Domestic business investment in capital goods 45.7 Domestic business investment in inventories 23.6 Exports 12.2 Domestic business investment in owner-occupied property Government spending on final goods and services 21.0 28.8 Transfer payments 8.9 Imports 10.5 Net tax revenue collections 14.2 The GDP for Giyata, based on the expenditure approach, is closest to (in GT millions): A 99.8 B 122.9 C 143.9 80 In an effort to boost economic growth, the ratio of government spending to tax collection revenue in Belarus has exceeded 1.0 for the past two years This trend is expected to continue for the foreseeable future For the aggregate income to equal aggregate expenditure, the: A Country should run a trade surplus B Country should increase foreign borrowings C Private sector should increase domestic investment © 2019 AnalystPrep.com All rights reserved 81 In the year 2013, the quantity of money on hand in a country, in local currency units, amounted to 450 million During the year, the average number of times the local currency changed hands was equal to 58 The country’s GDP, in real terms, amounted to 300 million If money neutrality holds and all else is held constant, an increase in the supply of money by 2% will most likely: A Decrease velocity to 56.86 B Increase price level to 88.74 C Increase real output to $306 million 82 Which of the following fiscal stances will be most effective in boosting aggregate demand? A Expanding the supply of money B Exploration of natural resources C Enhanced public spending on social goods 83 Currently, the USD/GBP spot rate is 1.6736, while the three month forward rate is 1.6745 Which of the following is the best interpretation of the forward discount/premium? A The interest rates in Great Britain are higher than those in United States B The real value of the USD/GBP spot rate will appreciate in the next 90 days C The interest rates in the United States are higher than those in Great Britain 84 The Moroccan government authorities have launched a program whereby they intend to enhance spending on public infrastructure as well as develop schools and hospitals To offset the effects of the fiscal policy, the country’s central bank is reducing money supply What are the implications of the two policies on Morocco’s economy? A Interest rates will be reduced B Reduction in private sector demand C Growth in private and public sectors © 2019 AnalystPrep.com All rights reserved 85 If the market demand for a product always responds positively to an increase in price resulting in a positively sloped demand curve, the product is most likely classified as: A Giffen B Normal C Inferior 86 Holding wages and labor constant, what will be the impact on the aggregate supply curve of Canada if the government decides to increase corporate income taxes and decrease the maximum labor hours per day? A Decrease in the aggregate supply B Increase in the aggregate supply C Both decisions have different impacts on aggregate supply 87 Primary objectives of fiscal policy are typically to: A Ensure stable prices and low-interest rates B Control inflation and unemployment C Manage the economy through the government's ability to influence GDP 88 Which of the following measures would most likely be necessary for a country with a ''high capital per labor'' to increase the growth in its GDP? A Increased growth in technology B Increased capital C Increased labor supply 89 All else being equal, a larger money supply most likely: A Raises market interest rates B Has no effect on market interest rates C Lowers market interest rates © 2019 AnalystPrep.com All rights reserved 90 What is the most likely effect of a contractionary monetary policy at the same time as an expansionary fiscal policy? A Aggregate demand increases, while interest rates increase B Inconclusive effect on aggregate demand, and interest rates increase C Inconclusive effect on aggregate demand, and interest rates decrease 91 Which of the following measures of price index excludes energy and food items from the basket for calculation purposes? A Core inflation B Headline inflation C Wholesale price index 92 In which of the following exchange rate strategies can a country make an explicit commitment to exchange its domestic currency for a specified foreign currency at a fixed rate? A Currency board arrangement B Monetary union C Target zone 93 An investor is interested in earning risk-free profit on 100 United Arab Emirates Dirham (DUB) He finds out that the DUB/CAD exchange rate is 0.4, and the futures exchange rate DUB/CAD one year from today is 0.45 Given that the risk-free interest rate in Canada is 5%, and the risk-free rate in the United Arab Emirates is only 2%, the amount of risk-free profit earned in terms of DUB is closest to: A 18.125 B 16.125 C 12.5 © 2019 AnalystPrep.com All rights reserved 94 Russia can produce, at maximum capacity, 30 million litres of beer and million liters of vodka, while Ukraine can produce 35 million liters of beer and 21 million liters of vodka Which of the following statements is/are accurate? I Ukraine has an absolute advantage in the production of both products II Ukraine has a comparative advantage in the production of beer III Ukraine has a comparative advantage in the production of vodka A I & II only B I & III only C II & III only 95 The CPIs of India and Pakistan are 132 and 121, respectively If the nominal exchange rate is 1.32 PKR/INR, then the real exchange rate for India is closest to: A 1.78 B 1.44 C 1.12 96 Which of the following is least likely to be used as a pricing strategy in a monopoly? A Single price strategy B Interdependent pricing C Discriminating pricing strategy 97 If the money supply curve shifts to the left, interest rates will most likely: A Increase B Decrease C Remain unaffected in the short-run © 2019 AnalystPrep.com All rights reserved ... 20%, 31% , and 17 % respectively A 1. 0000 B 0.2674 C 0. 517 1 Suppose the GDP deflator for Brazil was 12 0.0 in 2 012 and 211 .5 in 2 017 This indicates an inflation rate of: A 9.8% B 15 .3% C 12 .0% 10 An... to: A 2. 011 1 B 3.0248 C 4.8524 48 If the USD/CAD spot rate is 1. 5 011 and the USD/CAD forward rate is 1. 4 413 , then the forward discount is closest to: A -0.0398 B 0.0398 C 0.0 415 © 2 019 AnalystPrep.com... to: A 90 .1 B 10 4.4 C 11 0.0 © 2 019 AnalystPrep.com All rights reserved 46 You are given the following exchange rates: EUR/USD CHF/USD JPY/CHF JPY/CAD GBP/CAD 0.6288 0.8833 12 0.3 211 99.00 01 0.5556