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Free CFA-Level-I Exam Braindumps (page: 329)

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PDF with 3963 Questions

The period between the trough of the business cycle and the next peak is called the

  1. cyclic phase.
  2. expansionary phase.
  3. contractionary phase.
  4. recessionary phase.

Answer(s): B

Explanation:

After a downturn reaches bottom and economic conditions begin to improve, the economy enters the expansion phase of the cycle. Here business sales rise, GDP grows rapidly and the rate of unemployment declines. The expansion eventually blossoms into another business peak.



An unanticipated decrease in short-run aggregate supply will lead to a

  1. higher price level and a lower real interest rate.
  2. lower price level and a lower real interest rate.
  3. lower price level and a higher real interest rate.
  4. higher price level and a higher real interest rate.

Answer(s): D

Explanation:

An unanticipated reduction in short run aggregate supply will cause the price level to rise as the short run aggregate supply curve shifts left. Since people will believe that their lower incomes are temporary, households will reduce their current saving level to maintain current consumption at a level more consistent with their longer term perceived opportunities. This reduction in the supply of loanable funds causes the interest rate to increase.



If decision makers fail to anticipate the inflationary effects of demand stimulus policies, in the short run the stimulus will

  1. increase both inflation and the nominal interest rate but exert little impact on real output and employment.
  2. increase the real interest rate.
  3. reduce the real interest rate.
  4. lead primarily to larger output and high employment.
  5. both lead primarily to larger output and high employment and reduce the real interest rate.

Answer(s): E

Explanation:

Unanticipated inflation, as the result of demand stimulus policies, increases output and employment since the real wage is eroded and the cost of labor declines.



The primary cause of frictional unemployment is

  1. fluctuations in aggregate demand.
  2. the lack of training and marketable qualifications in job seekers.
  3. inaccurate and costly information about job opportunities.
  4. high unemployment benefits that reduce the incentive of unemployed workers to seek work.

Answer(s): C

Explanation:

Frictional unemployment is the result of a scarcity of information and the search activities of both employers and employees for information that will help them make better employment choices.






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