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Free CFA-Level-I Exam Braindumps (page: 367)

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PDF with 3963 Questions

The relationship between inflation and unemployment rate is known as:

  1. Phillips curve.
  2. Equation of exchange
  3. Lucas curve.
  4. Inflation-unemployment parity

Answer(s): A

Explanation:

Following earlier work by the British economist,
E. Phillips, economists noted an inverse relationship between the rate of unemployment and the rate of inflation.
This curve is widely known as the Phillips curve.



The GDP measures:

  1. the total value of all goods, services and financial transactions during a period.
  2. the total value of all the earnings in the economy.
  3. the total value of all goods and services produced in the economy during a period.
  4. the total value of all final goods and services produced in the economy during a period.

Answer(s): D

Explanation:

Note that the phrase "final goods" is critical. Intermediate goods are ignored in the calculation of GDP, as are all financial transactions. Further, since earnings look at net profits on goods and services but subtract out the employee salaries, for one, a sum of the earnings in an economy will significantly underestimate GDP.



A bank has deposits of $23 billion and reserves of $3.1 billion. If the excess reserves equal $400 million, the deposit expansion multiplier equals ________.

  1. 9.11
  2. 8.33
  3. 8.52
  4. 7.42

Answer(s): C

Explanation:

The required reserves equal 3.1 - 0.4 = $2.7 billion on deposits worth $23 billion. Thus, the required reserve ratio equals 2.7/23 = 11.74%. So the deposit expansion multiplier equals 1/0.1174 = 8.52.



Which of the following would not be an expected impact of a debt pay down program?

  1. a decrease in aggregate demand
  2. a shift to the left in the aggregate supply curve
  3. an increase in unemployment
  4. a decrease in the price level
  5. falling interest rates

Answer(s): B

Explanation:

Theoretically, fiscal policy should cause a shift in the aggregate demand curve, which will cause movement along the supply curve. Debt pay down implies that net government spending (spending less taxes) is negative, and therefore the demand curve has shifted to the left, while the supply curve has not moved.






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