Q a schweser self test 05 economic analysis question

Use the following information for Questions 1 through 6.Economist James Jones prepares economic forecasts for Global Bancorp, one of the world's largest investment banks.. Jones finds th

Use the following information for Questions 1 through 6.

Economist James Jones prepares economic forecasts for Global Bancorp, one of the world's largest investment banks The markets have been volatile with 1.3% inflation, and a change in the party in power in Washington has many investors worried about the future Jones has been tasked with projecting what will happen in the year ahead

Jones begins by looking at interest rates in the hopes of offering some help to Global's bond

department He knows the yield curve is flat, but wants more insight on the future direction of interest rates Jones finds the Taylor rule useful for predicting the Federal Reserve's action, so he attempts

to calculate a short-term interest rate target based on the following data:

Current short-term rate target: 4.15%

Target inflation rate: 2.00%

Expected inflation rate: 0.60%

Expected GDP growth, current year: 3.84%

Long-term estimated GDP growth rate: 3.27%

Jones also performs some analysis of the U.S economy from an equity perspective The stock market has been going up, and sales and profit growth are on the increase P/E ratios are very high, but wage growth is very low

While emerging markets are not Jones' area of expertise, he has also been asked to make a

recommendation regarding investment in Venvakia In his research, Jones learns the following information:

Venvakia's population is rising at a 3.2% rate, while the rate of participation in the labor force is rising

at a 0.9% clip Over the last year, GDP increased 4.5% The world's GDP rose 3% In an effort to boost growth, the government funds high-quality colleges to improve the versatility of the Venvakian workforce

Venvakia's government is uncommonly steady relative to that of other countries in its part of the world The country's tax rate is quite low, and there are very few deductions allowed for either

consumers or businesses Spending on capital inputs is expected to fall 1.5% this year, though total factor productivity is expected to rise 0.4% The inflation rate is currently 1.3% and expected to stay

at that level this year Consumer consumption is expected to rise 4.4% this year, and an expected appreciation in Venvakian currency should boost buying power

After collecting data on Venvakia, Jones submits his investment recommendation to Global's foreign desk

Question #1 of 6

Based on the shape of the yield curve, what is the most likely current blend of fiscal and monetary policy?

Monetary policy Fiscal policy

A) Restrictive Expansive

B) Expansive Restrictive

C) Expansive Expansive

Question #2 of 6

The target short-term interest rate using the Taylor rule is closest to:

A) 3.15%

B) 2.74%

C) 3.73%

Question #3 of 6

If Jones' inflation forecast is incorrect and inflation is 2.0%, which of the following are most

likely true?

A) Interest rates will increase

B) Bond prices will increase

C) Stock prices will decline

Question #4 of 6

Based on Jones' forecasts, what action should the bond portfolio managers take?

A) Increase duration

B) Decrease duration

C) Underweight cyclicals

Question #5 of 6

Venvakia's long-term economic growth forecast is closest to:

A) 3.0%

B) 3.7%

C) 7.1%

Question #6 of 6

Should Global invest in Venvakian businesses?

A) No, because government policies are not likely to enhance growth

B) Yes, because economic growth is likely to remain higher than the global average

C) No, because economic growth is likely to fall below the global average