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Free CFA-Level-I Exam Braindumps (page: 344)

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A shoe manufacturer believes inflation will increase dramatically over the next year. What incentives does this create for this firm?

  1. The firm will manufacture less, knowing that prices will be higher in the future.
  2. The firm will respond to demand from retailers, regardless of inflation.
  3. If inflation is widely expected, it will have no impact on the firm's strategy.
  4. The firm will want to decrease inventories now because future inventories will be more costly and therefore less profitable.
  5. The firm will attempt to store shoes in inventory, knowing that in the future these shoes will be worth more.

Answer(s): E

Explanation:

Inflation will cause the manufacturer's costs to increase in terms of raw materials and wages. In addition, the price of shoes should also increase. Therefore the firm has an incentive to produce now, and store these goods in inventory until prices rise.



Which of the following will most likely occur in the short-run if there is an unanticipated increase in aggregate demand?

  1. an increase in output and a higher price level
  2. a decrease in prices, while output remains unchanged
  3. a decrease in output and a higher price level
  4. a decrease in output and a lower price level
  5. an increase in output, while prices remain unchanged

Answer(s): A

Explanation:

In response to an unanticipated increase in aggregate demand prices will rise and output will temporarily exceed full employment capacity. In the long run, output will return to its long run potential.



An economy is currently in equilibrium at full employment. If there is an anticipated decrease in demand, which

of the following effects can be seen in the short run?

  1. Real GDP decreases.
    II. The supply curve shifts to the right.
    III. The demand curve moves to the left.
    IV. Prices decrease.
  2. IV only
  3. I, II, III & IV
  4. III & IV
  5. II, III & IV

Answer(s): D

Explanation:

If the buyers and sellers in the resource market completely anticipate the effects of a decrease in demand, then they will correctly forecast the lower future inflation. This will prompt buyers to postpone current consumption and wait till prices drop. On the other hand, suppliers would prefer to sell today,while prices are high, instead of waiting till the prices fall. The demand curve will therefore quickly move to the left and the supply curve will move to the right. An equilibrium will be reached at a lower price which leaves the real quantities unaffected, changing only the nominal variables.



Employment is the number of persons employed divided by the number of persons

  1. In the civilian population age 16 and over.
  2. Employed plus the number unemployed.
  3. Unemployed.
  4. In the labor force.

Answer(s): A

Explanation:

The employment/population ratio is the number of persons aged 16 years and over employed as civilians divided by the total civilian population 16 years of age and over. The ratio is expressed as a percentage. This rate does not make a subjective judgment as to whether a person is actually "available for work" or "actively seeking employment."






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