1 1 CFA l1 economics questions pdf

Shift aggregate demand to the left causing a higher price level.. Marginal revenue equals marginal cost and price exceeds average total cost.. Marginal revenue is greater than marginal c

CFA LEVEL 1 – ECONOMICS

By AnalystPrep.com

1 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

2 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%)

3 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 Leftward shift in the electricity supply curve

B Leftward movement along the electricity supply curve

C Rightward shift of the electricity demand curve

5 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%

6 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

7 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

8 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

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

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?

most likely indicate a period of:

A Disinflation

B Deflation

C Stagflation

16 A small island nation has the following economic characteristics:

17 Consider the following table for a country’s nominal GDP and corresponding GDP deflators

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

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:

Investment income received from foreigners $980,000

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

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

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:

Exports of goods and services $14,000,000

Investment income received from foreigners $3,200,000

Imports of goods and services $11,430,000

Investment income payment made to foreigners $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

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:

36 An analyst gathered the following information about a country:

The economist would estimate the unemployment rate to be closest to:

rate of return is closest to:

Where P is the price of a bag of rice

The quantity of bags of rice bought and sold at equilibrium is closest to:

A 4

B 11

C 15

39 Corn supplies are sharply reduced because of an epidemic in a specific country, and consumers turn to wheat as a substitute for corn How would you best illustrate this change in the corn market in supply-and-demand terms?

A The supply curve for corn would shift to the left

B The demand curve for corn would shift to the left

C The demand curve for corn would shift to the right

40 The accompanying table shows the prices and yearly quantities sold of souvenir T-shirts in the town of Springfield

41 The aggregate demand curve shows a:

A Positive relationship between the price level and aggregate output demanded

B Negative relationship between the price level and aggregate output supplied

C Negative relationship between the price level and aggregate output demanded

42 Which of these would least likely be an objective of monetary policy?

A Ensuring price stability

B Ensuring general trust in the currency

C Ensuring economic growth

43 Which of the following statements is least likely accurate?

A The employment rate is the percentage of the labor force that is employed

B The labor force is comprised of all of the members of a particular population who are able to work

C If the labor force participation rate declines and the number of people employed remains unchanged, the unemployment rate will increase

44 A number of workers at an airplane manufacturing plant in Montreal, Canada, are laid off because of a financial crisis The manufacturer isn't sure when the plant will need to rehire What type of unemployment describes the workers' situation?

A Cyclical unemployment

B Structural unemployment

C Frictional unemployment

45 A country has a real GDP of $4.4 trillion and a nominal GDP of $4.84 trillion The

unemployment rate is 6.5% The GDP deflator is closest to:

A 90.1

B 104.4

C 110.0

46 You are given the following exchange rates:

48 If the USD/CAD spot rate is 1.5011 and the USD/CAD forward rate is 1.4413, then the

forward discount is closest to:

A -0.0398

B 0.0398

C 0.0415

49 An analyst gathered the following information about Portugal:

A Ignores exogenous variables

B Ignores endogenous variables

C Does not take feedback effects from all markets into consideration

51 An exchange rate between two South American currencies has increased to 1.6200 If the base currency has appreciated by 10% against the price currency, the initial exchange rate

between the two currencies was closest to:

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

Average sales revenue ($ millions) 2.14 1.53

Based on the data provided, the GDP deflator is closest to:

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

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:

3

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 3 will shift the LRAS and SRAS curves rightward

B Factor 2 will not impact the SRAS curve but will shift the LRAS curve rightward

C Factor 1 will shift the SRAS curve leftward but have no impact on the SRAS curve

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 one-

month spot rates is summarized in the exhibit below:

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: