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Free CFA-Level-I Exam Braindumps (page: 359)

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A reserve requirement of 5 percent implies a potential money deposit multiplier of ________.

  1. 20
  2. 5
  3. 10
  4. 25
  5. 100

Answer(s): A

Explanation:

The potential money deposit multiplier is the reciprocal (inverse) of the required reserve ratio. Thus, a reserve requirement of .5 implies a potential money deposit multiplier of 1/.5 = 20.



Inflation is problematic for which of the following reasons

  1. Purchasing power declines at a faster rate than incomes rise
    II. Inflation causes nominal interest rates to rise
    III. Inflation creates a disincentive to enter into otherwise beneficial long-term agreements
  2. I, III
  3. I only
  4. II, III
  5. III only
  6. III only
  7. I, II, III

Answer(s): D

Explanation:

Inflation generally implies that all prices, including the price of labor, increase at the same rate.
Therefore inflation does not cause a real decline in income. Although nominal interest rates would rise with increased inflation, this does not cause a fundamental economic problem. However, because inflation tends to create long-term uncertainty, many long-term agreements are foregone that would otherwise be beneficial.



The unemployment rate of teen-agers is substantially higher than the unemployment rate of prime-age workers primarily because teen-agers

  1. are more likely to be in the armed forces and therefore they end up being counted as unemployed.
  2. are less likely to be in the labor force than older workers since many teenagers are still attending school.
  3. are less likely to switch jobs and move into and out of the labor force than older workers.
  4. are more likely to switch jobs and move into and out of the labor force than older workers.
  5. if they search more diligently, can generally find high-paying jobs that are available only to experienced, highly skilled workers.

Answer(s): D

Explanation:

Youthful workers experience more unemployment because they change jobs and move in and out of the labor force often.



Frictional unemployment means

  1. there is a decline in the demand for labor in the aggregate, due to recessionary tendencies in the economy.
  2. there are not enough jobs to go around.
  3. jobs are plentiful but workers scarce.
  4. imperfect information prevents qualified workers from matching up with the available jobs.

Answer(s): D

Explanation:

Frictional unemployment refers to unemployment due to constant changes in the economy that prevent qualified unemployed workers from being immediately matched up with existing job openings. It results from the 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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