www.cfa-aficionado.cjb.net www.marbella.to/cfa-aficionado 1081 Questions + Answers of the CFA EXAM Level 1 Study Session : Macroeconomics (Part B) Introduction by the Author : Hi there, CFA fellows, here you are . You see , it doesn”t need to be an expensive prep course to get first class preparation for the CFA exams. The following questions are original CFA AIMR questions and not just composed by prep course providers. They all come with a clear answer. In order to understand why the questions are commented by “answer is correct / incorrect” it is important to know that all questions have automatically been responded with the first (and only the first ) answer. Your CFA-Aficionado cfa-aficionado@softhome.net cfa-aficionado@flashmail.com And now here we go : An economy is currently operating at full employment, with an inflation rate of 6%. The Central Bank adopts an inflationary measure consistent with an inflation rate of 8% but people anticipate an inflation of 7%. Then, the unemployment in the short run will be ________ the natural rate, as predicted by the Rational Expectations Model. * could be above or below. * same as * below * above That answer is incorrect. Correct answer: below The short-run equilibrium is affected by the accuracy of the predictions made by decision-makers. Since workers under-estimate the future inflation resulting from the changed policy, they will settle for lower wages than those consistent with the actual inflation. Consequently, the Rational Expectations Phillips curve predicts that unemployment will decrease in the short run. With the economy currently at full employment, the unemployment rate will fall below the natural rate, temporarily expanding the real GDP beyond the potential level. Over the long run, people will correct their erroneous predictions and wages will rise to a level where full employment will prevail once again. ------------------------------ Which of the following would increase GDP? * Mercedes-Benz begins to produce and sell cars in Alabama. * An American investor buys 100 shares of Ford stock. * Ford Motor Company begins to produce and sell cars in Japan. * An American investor purchases 100 shares of Mercedes-Benz stock. That answer is correct! Since GDP represents the total market value of all final goods and services produced domestically during a specific period, GDP would rise if a foreign company starts to produce cars domestically. ------------------------------ If the marginal propensity to consume (MPC) is .75 or 3/4, what is the expenditure multiplier? * 0.25 * 4.0 * 3.0 * 2.0 That answer is incorrect. Correct answer: 4.0 The expenditure multiplier is found according to the equation M= 1/(1-MPC). Thus, M = 1/(1-3/4) = 4. ------------------------------ Which of the following would be an example of non-activist monetary policy? * The Central Bank attempts to counter-act negative developments in the economy. * Inflation is the only target for the Central Bank. * The Central Bank tries to keep the money supply constant. * The government keeps spending constant and allows tax revenues to rise or fall to compensate for changes in aggregate income. * The Central Bank increases the money supply by 5% every year. That answer is incorrect. Correct answer: The Central Bank increases the money supply by 5% every year. The classic non-activist monetary policy example is to increase the money supply by a particular level every year. Activist or discretionary monetary policy involves changing the supply of money to counter￾act negative developments in the economy. ------------------------------ "Counter-cyclical macroeconomic policy will be ineffective as a stabilization tool because people will undermine the policy by adjusting their choices once they expect a systematic policy response to recessions and booms." This statement most clearly reflects the * Keynesian view. * rational expectations view. * supply-side view. * 1960 view of the Phillips curve. That answer is incor