Economics — CFA® Program Level I

Question 1

Economist Hana Dvořáková prepares a briefing on the real exchange rate of the marek, the currency of the country of Lessavia, against the currency of its main trading partner. In the quote she uses, the marek is the base currency, and the real rate equals the nominal rate multiplied by Lessavia's price level divided by the partner's price level. Which statement in her briefing is least likely accurate?

Accepted Answer

A rise in the marek's real exchange rate makes Lessavian exports cheaper for foreign buyers and improves their competitiveness.

Answer

If the nominal rate is unchanged and Lessavian inflation exceeds the partner's, the marek appreciates in real terms.

Answer

Unlike the nominal rate, the real rate adjusts for relative price levels, so it reflects the marek's relative purchasing power.

Question 2

Brennholt Pumpenwerke, a multinational maker of industrial pumps, is choosing between two countries for a new plant. The Kingdom of Tamsel is highly cooperative in its international relations, while the Republic of Varnhold mostly acts on its own. Compared with Varnhold, Tamsel most likely offers the company:

Accepted Answer

more predictable trade rules and lower costs of moving goods and capital across borders.

Answer

more frequent use of tariffs and export controls to advance its national interests.

Answer

more freedom for its government to change policies without regard to treaty commitments.

Question 3

During a strong expansion in the country of Ilmarra, the government's budget deficit narrows. Which of the following changes is least likely an example of an automatic stabilizer at work?

Accepted Answer

Parliament votes to cut planned spending on new regional highways.

Answer

Income tax receipts rise faster than incomes as more earnings fall in higher tax brackets.

Answer

Spending on unemployment benefits falls as fewer people claim jobless support.

Sample questions