CFA Level I

Question #1 of 12 Question ID: 1210908

An analyst is evaluating the degree of competition in an industry and compiles the following information:

Few significant barriers to entry or exit exist.

Firms in the industry produce slightly differentiated products.
Each firm faces a demand curve that is largely unaffected by the actions of other individual firms in the industry.

The analyst should characterize the competitive structure of this industry as:

A) oligopoly.

B) monopoly.

C) monopolistic competition.

Question #2 of 12 Question ID: 1210907

Which of the following statements about the behavior of firms in a perfectly competitive market is least accurate?

A) A firm experiencing economic losses in the short run will continue to operate if its
revenues are greater than its variable costs.

B) A firm that is producing less than the quantity for which marginal cost equals the market
price would lose money by increasing production.

C) If firms are earning economic profits in the short run, new firms will enter the market and
reduce economic profits to zero in the long run.

Question #3 of 12 Question ID: 1210914

Compared to a customs union or a common market, the primary advantage of an economic union is that:

A) its members adopt a common currency.

B) its members have a common economic policy.

C) it removes barriers to imports and exports among its members.

Question #4 of 12 Question ID: 1210915

A country's balance of payments accounts show the following:

A net inflow of capital transfers.

Greater sales than purchases of non-financial assets.
Greater foreign-owned assets in the country than government-owned assets abroad.

The country is most accurately described as having:

A) a capital account deficit.

B) a current account deficit.
C) a financial account deficit.

Question #5 of 12 Question ID: 1210906

Other things equal, an increase of 2.0% in the price of Product X results in a 1.4% increase in the quantity demanded of Product
Y and a 0.7% decrease in the quantity demanded of Product Z. Which statement about products X, Y and Z is least accurate?

A) Products X and Y are substitutes.

B) Products X and Z are complements.

C) Products Y and Z are complements.

Question #6 of 12 Question ID: 1210916

The EUR/USD spot exchange rate is 0.70145, and one-year interest rates are 3% in EUR and 2% in USD. The forward
USD/EUR exchange rate is closest to:

A) 1.1426.
B) 1.4118.

C) 1.4396.

Question #7 of 12 Question ID: 1210917

Depreciation of a country's currency is most likely to narrow its trade deficit when:

A) its imports are greater in value than its exports.

B) price elasticity of import demand is greater than one.

C) investment increases relative to private and government savings.
Question #8 of 12 Question ID: 1210911

According to real business cycle theory, business cycles result from:

A) rational responses to external shocks.

B) inappropriate changes in monetary policy.

C) increases and decreases in business confidence.

Question #9 of 12 Question ID: 1210913

A decrease in the target U.S. federal funds rate is least likely to result in:

A) a proportionate decrease in long-term interest rates.

B) an increase in consumer spending on durable goods.

C) depreciation of the U.S. dollar on the foreign exchange market.

Question #10 of 12 Question ID: 1210910

For an economy that is initially at full-employment real GDP, an increase in aggregate demand will most likely have what effects
on the price level and real GDP in the short run?

A) Both will increase in the short run.

B) Neither will increase in the short run.

C) Only one will increase in the short run.

Question #11 of 12 Question ID: 1210909

Potential real GDP is least likely to increase as a result of:

A) an improvement in technology.
B) an increase in the money wage rate.
C) an increase in the labor force participation ratio.

Question #12 of 12 Question ID: 1210912

When the economy is operating at the natural rate of unemployment, it is most likely that:
A) inflation is accelerating.
B) frictional unemployment is absent.
C) structural unemployment is present.