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CFA Macroeconomics: Questions & Answers:

October 25, 2013
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Greetings of the day to all you CFA aspirants! As you might be aware, Economics is an extremely important topic in the #CFA exam. There are so many different aspects to cover under Macroeconomics. Do you know about the nuances of topics such as GDP, transfer payments or balance of trade? Well, if you don’t, then you’ve come to the right place! Here, you will find a list of questions along with the relevant answers. So if you have any doubts, find your answers right here! These answers, found so easily, have aided my prep enormously.

So if you go through it as well, it will help you too. Let’s move on to these questions!

Question: Why transfer payments are excluded from GDP?

Answer: The only goods and services included in the calculation of GDP are those whose value can be determined by being sold in the market. All goods and services included in the calculation of GDP must be produced during the measurement period. Don't think so transfer payment relate to this mentioned above. It is the source through government distributes income in economy.

A puzzling question that people usually have is why Transfer Payments are not included in the GDP. So, you see? The answer is simple. It cannot be included in the GDP because no calculable output is produced!

Question: What is the difference between open market operation and primary market auction?

Answer: Primary bond market auction is a tool of Open market operation. During the OMO government needs to buy and sell some bonds by using this PMA approach to regulate economy.

Question: Why would an increase in government spending shift the IS curve and not the LM curve?

Answer: Increase in government spending is a part of Fiscal deficit and it moves up income, interest rate, money demand( And as it will not effect liquidity margin). Moneatry poky usually effects LM curve.

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