CFA L1 Economics Quiz 2

vishnu.ftw
Good Student
Posts: 22
Joined: Wed Apr 03, 2013 5:01 pm

CFA L1 Economics Quiz 2

Postby vishnu.ftw » Fri May 03, 2013 8:08 am

Any payment to a factor of production consists of factor opportunity cost and economic rent. In the light of this statement, which of the following is most likely to be false?
Choose one answer.
a. For a perfectly elastic supply curve, the totalpayment to a factor of production is its economic rent.
b. A payment for M.F.Hussain’s only painting of horses consists of only economic rent.
c. A payment to a rickshaw for his services where there are hundreds of rickshaws willing to go at the same payment, consists of zero economic rent
The correct answer is A. For a perfectly elastic supply curve, the total payment to a factor of production is its economic rent.
For a perfectly elastic supply curve, the payment to a factor of production consists of zero economic rent.
Incorrect
Marks for this submission: 0/1.

The economy faces supply shock with an abnormal increase in prices of most of the vegetables and wheat prices. Also, the oil prices have risen abnormally. What policy should the Government take?
Choose one answer.
a. Contractionarymonetary policy
b. Expansionay monetary policy
c. Contractionary fiscal policy
The correct answer is B.
Incorrect
Marks for this submission: 0/1.


Mosby Manufacturers once had a 70% market share in the industry of toy making. Due to recent technical developments, their market share has fallen drastically to 5%. They reported a revenue of $100,000 and following expenses:

Repairs are on machinery which is required every year. Should Mosby manufacturers consider shutting down its business? Will their decision change in the long run?
Choose one answer.
a. Shut down in short run itself.
b. Continue now and shut down in long run.
c. Continue now. Information is not sufficient to comment for long run
The correct answer is B.
In short run:

Since, TR > TVC, they should not shut down
In long run:
Since, TR < TC, they should close in the long run.
Incorrect
Marks for this submission: 0/1.



Given C = 200 + 0.5Yd
I = 250 – 7i
TA = 0.4Y
G = 175
M = 125
L = 0.25Y – 3i
X = 120
M = 20
Find the equilibrium rate of interest and equilibrium level of income at which there is simultaneous equilibrium in the goods and money market.
Choose one answer.
a. interest = 22.73%; income = $772.73
b. interest =21.75% ; income = $797.50
c. interest = 20% ; income = $795
The correct answer is A.
Equilibrium in the goods market:
Y = C + I + G +NX
Y = 200 + 0.5(Y – 0.4Y) + 250 – 7i + 175 + 120 – 20
Y = 700 + 0.3Y – 7i
Y = 1000 – 10i
Equilibrium in the money market:
L = M
0.25Y – 3i = 125
Y = 500 + 12i
Solving the IS and LM curve simultaneously we get i =22.73% and income(GDP) = $772.73.
Incorrect
Marks for this submission: 0/1.


Please explain the last question, how TA has been substituted into the C equation.
Please explain how we have enough information to determine Mosby should shut down in the long run (i.e. how to determine TC from TVC)
For the second question, if prices are rising, shouldn't government enact a contractionary monetary policy to prevent inflation?
For the first question, please explain the answer a.

shivam
Posts: 3
Joined: Tue May 07, 2013 4:33 pm

CFA L1 Economics Quiz 2

Postby shivam » Tue May 07, 2013 5:33 pm

Economic rent is the calculated as the difference between the amount that an owner of land or capital receives and the opportunity cost he forgoes.For perfectly elastic supply curve small changes in price can cause large changes in quantity supplied so for a class that follows perfectly elastic curve like for an unskilled labor the difference between amount received and amount desired is minuscule and thus Economic rent is Zero.

shivam
Posts: 3
Joined: Tue May 07, 2013 4:33 pm

CFA L1 Economics Quiz 2

Postby shivam » Wed May 08, 2013 11:24 am

In last question Yd is disposable income which is calculated as difference of income(Y) and income shelled out in form of taxes (TA which is equal to .4Y). Hence Yd= Y - .4Y

In question 3 mention the expenses of the firm as ony then the question can be answered.


Return to “CFA Level I”



cron

Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.