QUESTION: 1365

If the Fed wanted a more expansionary monetary policy, which of the following would be most appropriate?

reduce taxes
increase government expenditures
buy government bonds from the public
raise the discount rate

Answer(s): C

Explanation:

To expand the money supply the Fed may buy government bonds from the public. This action injects money into the economy because individuals who formerly held U.S. security notes now hold money balances.

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QUESTION: 1366

Country A's workforce consists in large part of seasoned workers, with an average age of around 45. Country B is relatively young, with an average workforce age of just 31. A is also a mature country, having implemented many modern advances in technology. B is a growing country with a dynamic leadership which is bringing about a technological revolution in the country. Given this, country A has ________ structural unemployment and ________ frictional unemployment than country B.

lower, lower
higher, lower
lower, higher
higher, higher

Answer(s): D

Explanation:

Frictional employment arises because of the fact that employers do not known about all the available workers and their qualifications while job-seekers are not fully aware of the available job opportunities matching their interests and skills. This leads to a longer job placement time and also causes a higher employee turnover due to job mismatches. The resulting contribution to the unemployment rate is called "frictional unemployment." Since younger workers tend to have a higher job mobility, a younger workforce will also have a higher frictional unemployment.
Changes due to technology, public policy or demands in the market place lead to people with outdated skills or skills which do not match the jobs being offered. The resultant contribution to unemployment is referred to as "structural unemployment." Hence, a rapidly growing economy will tend to generate a higher level of structural unemployment since in such an economy, skills tend to get outdated faster.

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QUESTION: 1367

Which of the following is not true about monetary policy?

The money supply is neutral in the long-run.
Monetary policy can only serve to decrease economic volatility.
In the long-run, the price level is a function of production and money supply.
Without interference, the money supply would remain constant.
The money supply will have no impact on real income if changes in the price level are anticipated.

Answer(s): D

Explanation:

Usually we think of the Central Bank being in control of the money supply, but several factors outside of the baker's control can impact the money supply. Most notably is the currency deposit ratio, which measures how much currency consumers actually hold. If consumers hold more physical currency, this decreases banks' ability to create more money by lending funds.

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QUESTION: 1368

Rich owns a shoe factory. He believes that a recent monetary policy announcement will cause 5% inflation over the next year, equally effecting the price of shoes, the cost of inputs, and wages. How will Rich change his production plans considering this forecast?

He will try to hide this information from his laborers.
Cannot determine, this depends on how much prices actually inflate over the next year.
He will increase shoe production because the expansionary monetary policy should boost consumer confidence and hence shoe demand.
No changes.
He will increase shoe production to take advantage of higher prices.

Answer(s): D

Explanation:

Anticipated inflation is always a wash for both consumers and producers, therefore Rich would not change his production plans. Remember that possible secondary effects, like an increase in consumer confidence, cannot be assumed. How high actual inflation is during the year is irrelevant since planning is based on forecasted inflation. This is an important concept for understanding how policy effects decision making. Note that if the entire economy thought exactly as Rich did, the expansionary monetary policy will have no real impact on the economy.

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Free CFA-Level-I Exam Braindumps (page: 342)

QUESTION: 1365

Explanation:

QUESTION: 1366

Explanation:

QUESTION: 1367

Explanation:

QUESTION: 1368

Explanation: