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FACULTAD DE CIENCIAS EMPRESARIALES Y ECONÓMICAS

PERÍODO ACADÉMICO: 2020-1


DOCENTE RESPONSABLE: ENRIQUE MANUEL OCHOA GARCÍA, CFA

GESTIÓN DE INVERSIONES I
PRIMERA PRÁCTICA CALIFICADA
SOLUCIONARIO

Question 1 - #97160

Which of the following situations is least likely to lead to high barriers to entry and monopoly
supply?

A) Natural resources are spread among many firms.


B) Economies of scale are present.
C) Governmental licensing and regulations are present.
Your answer: A was correct!

All cases except wide distribution of a natural resource facilitate a monopoly. If natural resource
ownership is concentrated in one firm a monopoly would result.

This question tested from Session 4, Reading 16, LOS a.

Question 2 - #96795

Which of the following most accurately describes the relationship between the slope of a firm’s
long-run average total cost (LRATC) curve and scale economies?

Downward sloping Upward sloping


segment of LRATC segment of LRATC
A) Diseconomies of scale Economies of scale
B) Economies of scale Economies of scale
C) Economies of scale Diseconomies of scale
Your answer: A was incorrect. The correct answer was C)
Economies of scale Diseconomies of scale

The downward sloping segment of the LRATC cost curve covers the output range where
economies of scale exist because per unit costs decrease as output increases. The upward
sloping segment of the LRATC curve is where diseconomies of scale are present because costs
rise as output increases.

This question tested from Session 4, Reading 15, LOS i.

Question 3 - #96624

When demand for a good is inelastic, a higher price will:

A) fail to reduce the quantity demanded for the good.


B) lead to an increase in total expenditures for the good.
C) have no impact on the demand for the good.
Your answer: A was incorrect. The correct answer was B) lead to an increase in total
expenditures for the good.

When demand is relatively inelastic, consumers do not reduce their quantity demanded very
much when the price increases. That is, a given percentage increase in price results in a
smaller percentage reduction in quantity demanded. Thus, total expenditures on the good
increase. "Fail to reduce the quantity demanded for the good" is inaccurate because that would
only be true if demand was perfectly inelastic.

This question tested from Session 4, Reading 13, LOS l.

Question 4 - #97046

Consider the following statements:

Statement 1: “The sum of consumer and producer surpluses is maximized under both monopoly
and perfect competition.”

Statement 2: “All else being equal, a monopolist that practices price discrimination will be more
allocatively efficient than a single-price monopolist.”

With respect to these statements:

A) both of these statements are accurate.


B) neither of these statements is accurate.
C) only one of these statements is accurate.
Your answer: A was incorrect. The correct answer was C) only one of these statements is
accurate.

Statement 1 is incorrect because the sum of consumer and producer surpluses is maximized
under perfect competition when marginal benefit and marginal cost are equal, or equivalently,
where the marginal cost curve intersects the demand curve. Monopolies, however, produce a
quantity that is less than the quantity where marginal cost equals marginal benefit, so the sum
of producer and consumer surpluses is not maximized.

This question tested from Session 4, Reading 16, LOS a.

Question 5 - #97062

A shop foreman determines that an employee would produce two more units of output if he
worked one additional hour. The product currently sells for $15.00 per unit and the firm is a
price taker. Which of the following choices most accurately describes the relationship between
the marginal revenue (MR) and marginal revenue product (MRP) from the additional hour of
labor input?

A) MR = $15 and MRP < MR.


B) MRP > MR.
C) MRP = MR.
Your answer: A was incorrect. The correct answer was B) MRP > MR.
By definition, the MR is the addition to total revenue from selling one more unit of output. The
MRP is the revenue from selling the marginal product, which in this example is two units.
Therefore the MRP must be greater than the MR.

This question tested from Session 4, Reading 15, LOS k.

Question 6 - #97009

An attempt by that oligopolists to act with another firm in setting a higher price is called:

A) prisoner's dilemma.
B) high economic profits.
C) collusion.
Your answer: A was incorrect. The correct answer was C) collusion.

Collusion is when firms organize into an association to increase profits by controlling prices and
output. Collusion can take place when an industry has a small number of competitors and high
barriers to entry.

This question tested from Session 4, Reading 16, LOS d.

Question 7 - #96827

A firm has the following characteristics:

 relatively small in size.


 marginal revenue is equal to the selling price.
 economic profits will not be earned for any significant period of time.

The firm is best described as existing in a(n):

A) purely competitive market.


B) price searcher market.
C) monopolistic market structure.
Your answer: A was correct!

The firm being described is a price taker firm in a purely competitive market. These firms must
sell their product at the going market price, there are no barriers to entry, and there are a large
number of firms that produce a homogeneous product.

This question tested from Session 4, Reading 16, LOS h.

Question 8 - #97022

A practice whereby a seller charges different prices to different consumers of the same product
or service is called:

A) price competition.
B) price discrimination.
C) discriminatory pricing.
Your answer: A was incorrect. The correct answer was B) price discrimination.
Price discrimination is the practice of charging different consumers different prices for the same
product or service.

This question tested from Session 4, Reading 16, LOS d.

Question 9 - #96763

Which of the following conditions is most likely to exist for a typical production process when
average product is at its maximum?

A) Marginal product is increasing.


B) Average variable cost is at a minimum.
C) Marginal cost is at a minimum.
Your answer: A was incorrect. The correct answer was B) Average variable cost is at a
minimum.

When average product is at a maximum, average variable cost is at a minimum. At the


corresponding labor and output level, marginal product is decreasing and marginal cost is
increasing.

This question tested from Session 4, Reading 15, LOS l.

Question 10 - #97434

The demand curves faced by monopolistic competitors is:

A) not sensitive to price due to absence of close substitutes.


B) inelastic due to the availability of many complementary goods.
C) elastic due to the availability of many close substitutes.
Your answer: A was incorrect. The correct answer was C) elastic due to the availability of many
close substitutes.

The demand for products from monopolistic competitors is elastic due to the availability of many
close substitutes. If a firm increases its product price, it will lose customers to firms selling
substitute products.

This question tested from Session 4, Reading 16, LOS a.

Question 11 - #140361

The market for labor is best described as a:

A) factor market.
B) goods market.
C) services market.
Your answer: A was correct!

While some part of the labor market is dedicated to providing services, labor is generally viewed
as a factor of production.

This question tested from Session 4, Reading 13, LOS a.


Question 12 - #96907

A competitive firm will tend to expand its output as long as marginal:

A) revenue is greater than the average cost.


B) revenue is greater than marginal cost.
C) cost is less than average cost.
Your answer: A was incorrect. The correct answer was B) revenue is greater than marginal cost.

All firms will continue to expand production until marginal revenue = marginal cost.

This question tested from Session 4, Reading 16, LOS b.

Question 13 - #96740

For a linear demand curve, at the price where elasticity is -2.0, reducing prices will:

A) increase total revenue and we are at the point of maximum total revenue.
B) increase total revenue and we are not at the point of maximum total revenue.
C) decrease total revenue and we are not at the point of maximum total revenue.
Your answer: A was incorrect. The correct answer was B) increase total revenue and we are not
at the point of maximum total revenue.

If the price elasticity of demand is -2.0, this indicates that the percentage change in quantity
demanded is twice the percentage change in price. Thus, a decrease in price will be more than
offset by the increase in quantity, and total revenue will increase. We are not at the point of
maximum total revenue which is where elasticity is -1.0—the point of unit elastic demand.

This question tested from Session 4, Reading 13, LOS l.

Question 14 - #147056

Frequent changes in advertised prices are one of the costs of:

A) expected inflation only.


B) unexpected inflation only.
C) both expected and unexpected inflation.
Your answer: A was incorrect. The correct answer was C) both expected and unexpected
inflation.

Inflation imposes "menu costs" on an economy as businesses must frequently change their
advertised prices, regardless of whether inflation is expected or unexpected.

This question tested from Session 5, Reading 19, LOS g.

Question 15 - #98213

Which of the following is the most accurate definition of the velocity of money? The velocity of
money is the:
A) GDP of a country divided by its money supply.
B) GDP of a country divided by its price level.
C) money supply of a country divided by its price level.
Your answer: A was correct!

Velocity is the average number of times per year each dollar is used to buy goods and services
(velocity = nominal GDP / money). Therefore, the money supply multiplied by velocity must
equal nominal GDP. The equation of exchange must hold with velocity defined in this way.
Letting money supply = M, velocity = V, price = P, and real output = Y, the equation of exchange
may be symbolically expressed as: MV = PY.

This question tested from Session 5, Reading 19, LOS c.

Question 16 - #96501

When comparing a barter economy with an economy that uses money as a medium of
exchange we would expect increased efficiencies due to a reduction in which of the following?

A) The need to specialize.


B) Transaction costs.
C) Nominal interest rates.
Your answer: A was incorrect. The correct answer was B) Transaction costs.

Money functions as a medium of exchange because it is accepted as payment for goods and
services. Compare this to a barter economy, where if I have goat and want an ox, I have to find
someone willing to trade. Finding someone takes time and time is costly. With money, I can sell
the goat and buy the ox. Thus, transaction costs are reduced. Having money as a medium of
exchange would not reduce the inflation rate, interest rates, or the need to specialize in the
production of those goods in which we have a comparative advantage (low opportunity cost
producer).

This question tested from Session 5, Reading 19, LOS b.

Question 17 - #96519

Which of the following statements regarding U.S. Federal Reserve open market operations is
least accurate?

A) If the Fed wants to stimulate the economy, it will sell Treasury securities to banks.
When the Fed buys Treasury securities, short-term interest rates will generally
B)
decrease.
C) When the Fed sells Treasury securities, excess reserves decrease.
Your answer: A was correct!

If the Fed intends to stimulate the economy, they will buy, not sell, Treasury securities. Buying
Treasury securities injects reserves into the banking system.

This question tested from Session 5, Reading 19, LOS h.

Question 18 - #140404
Because some input prices do not adjust rapidly to changes in the price level, the short-run
aggregate supply curve:

A) exhibits a negative relationship between quantity supplied and the price level.
B) is more elastic than the long-run aggregate supply curve.
C) may be interpreted as representing the economy’s potential output.
Your answer: A was incorrect. The correct answer was B) is more elastic than the long-run
aggregate supply curve.

The short-run aggregate supply curve slopes upward (i.e., is not perfectly inelastic) because in
the short run some input prices do not adjust fully to changes in the price level. Because firms
can increase profit in the short run by increasing output in response to higher prices, there is a
positive short-run relationship between the price level and quantity supplied.

This question tested from Session 5, Reading 17, LOS g.

Question 19 - #97677

Which of the following statements regarding the monetary policy transmission mechanism is
most accurate?

Central banks can control long-term interest rates directly because decisions by
A)
consumers and businesses are based on these rates.
Central banks can control short-term interest rates directly, but long-term interest
B)
rates are beyond their control.
Central banks can control short-term interest rates by increasing the money supply
C) to increase interest rates or by decreasing the money supply to decrease interest
rates.
Your answer: A was incorrect. The correct answer was B) Central banks can control short-term
interest rates directly, but long-term interest rates are beyond their control.

Central banks can control short-term interest rates directly. However, the decisions of
consumers and businesses are based on long-term interest rates, which are beyond the control
of central banks. Increasing the money supply will decrease interest rates and decreasing the
money supply will increase interest rates.

This question tested from Session 5, Reading 19, LOS m.

Question 20 - #97540

If households are holding larger real money balances than they desire, which of the following is
least likely?

The interest rate is higher than its equilibrium rate in the market for real money
A)
balances.
B) The opportunity cost of holding money balances will decrease.
The central bank must sell securities to absorb the excess money supply and
C)
establish equilibrium.
Your answer: A was incorrect. The correct answer was C) The central bank must sell securities
to absorb the excess money supply and establish equilibrium.

If households’ real money balances are larger than they desire, the interest rate (opportunity
cost of holding money balances) is higher than its equilibrium rate. Households will use their
undesired excess cash to buy securities, bidding up securities prices and reducing the interest
rate toward equilibrium. This market process does not require any action by the central bank.

This question tested from Session 5, Reading 19, LOS d.

Question 21 - #97525

When potential real GDP is less than actual real GDP, the economy is most likely experiencing:

A) recession.
B) inflation.
C) underemployment.
Your answer: A was incorrect. The correct answer was B) inflation.

The economy is in an inflationary phase if actual real GDP is greater than potential real GDP.
When actual real GDP equals potential real GDP, the economy is said to be at full employment.
The economy is in a recessionary phase if real GDP is less than potential GDP.

This question tested from Session 5, Reading 17, LOS j.

Question 22 - #97200

The current annual inflation rate, as measured by using the Consumer Price Index (CPI), is best
defined as:

A) percentage change in the CPI from its base period.


B) percentage change in the CPI from a year ago.
C) increase in the CPI from a year ago.
Your answer: A was incorrect. The correct answer was B) percentage change in the CPI from a
year ago.

The inflation rate is the percentage change in the price index from a year earlier.

This question tested from Session 5, Reading 18, LOS f.

Question 23 - #96518

Assume the U.S. economy is undergoing a recession. In its efforts to stimulate the economy by
trying to influence short-term interest rates the Fed is most likely to take which two actions?

A) Buy Treasury securities and decrease bank reserve requirements.


B) Sell Treasury securities and increase bank reserve requirements.
C) Sell Treasury securities and decrease bank reserve requirements.
Your answer: A was correct!

If the economy is in a recession, the Fed is likely to attempt to decrease short-term interest
rates. Thus, the Fed will buy Treasury securities and decrease bank reserve requirements.

This question tested from Session 5, Reading 19, LOS h.

Question 24 - #138321
A firm’s most likely initial response to a cyclical increase in the inventory-to-sales ratio is to
adjust their utilization of labor by:

A) adding new workers.


B) reducing overtime.
C) laying off employees.
Your answer: A was incorrect. The correct answer was B) reducing overtime.

As a cyclical indicator, an increase in the inventory-to-sales ratio is a sign of slowing economic


growth. When decreasing their utilization of labor in response to a slowing economy, firms
typically first reduce overtime. Firms tend to be slow to lay off workers until it is clear that an
economic contraction is underway.

This question tested from Session 5, Reading 18, LOS b.

Question 25 - #138377

The government budget deficit of Country M is increasing. At the same time, the government
budget surplus of Country N is decreasing. Are the fiscal policies of these countries
expansionary or contractionary?

A) Both are contractionary.


B) One is expansionary and one is contractionary.
C) Both are expansionary.
Your answer: A was incorrect. The correct answer was C) Both are expansionary.

Expansionary fiscal policy increases a budget deficit or decreases a budget surplus.


Contractionary fiscal policy decreases a budget deficit or increases a budget surplus.

This question tested from Session 5, Reading 19, LOS r.

Question 26 - #97226

Silvano Jimenez, an analyst at Banco del Rey, is reviewing recent actions taken by the U.S.
Federal Reserve (the Fed) in setting monetary policy. Recently, the Fed decided to increase the
money supply, which has resulted in a decrease in real interest rates. At a staff meeting,
Jimenez brings this matter to the attention of his colleagues and makes the following
statements:

Statement 1: Although the money supply increase has led to a decrease in real interest rates,
we should begin to see U.S. investors decrease their investments abroad and the U.S. dollar
will appreciate in the foreign exchange market.

Statement 2: The Fed’s increase in the money supply will increase the amount of imports into
the U.S.

Are Statement 1 and Statement 2 as made by Jimenez CORRECT?

Statement 1 Statement 2
A) Incorrect Incorrect
B) Correct Incorrect
C) Incorrect Correct
Your answer: A was correct!

If the Fed increases the money supply and real interest rates decline, U.S. investors will seek
higher real rates of return abroad and the U.S. dollar will depreciate as the dollar will be
exchanged for foreign currencies in order to buy the foreign investments. Likewise, the
decrease in real interest rates will reduce the inflow of funds from abroad as foreign investors
seek higher rates of return outside the U.S. With a dollar that has depreciated, U.S. exports
should increase, as U.S. products will become cheaper for foreign buyers. As such, both
statements are incorrect.

This question tested from Session 5, Reading 19, LOS j.

Question 27 - #138253

Given the following quotes, GBP/USD 2.0000 and MXN/USD 8.0000, calculate the direct
MXN/GBP spot cross exchange rate.

A) 0.6250.
B) 0.2500.
C) 4.0000.
Your answer: A was incorrect. The correct answer was C) 4.0000.

Invert the first quote to read USD/GBP 0.5000. Then, 0.5000 × 8.0000 = 4.0000 MXN/GBP.

This question tested from Session 6, Reading 21, LOS d.

Question 28 - #147081

Country G and Country H have currencies that trade freely and have markets for forward
currency contracts. If Country G has an interest rate greater than that of Country H, the no-
arbitrage forward G/H exchange rate is:

A) equal to the G/H spot rate.


B) greater than the G/H spot rate.
C) less than the G/H spot rate.
Your answer: A was incorrect. The correct answer was B) greater than the G/H spot rate.

. If the interest rate in Country G is greater than the interest


rate in Country H, the numerator is greater than the denominator on the right side of the
equation. The left side must have the same relationship, so the forward rate must be greater
than the spot rate.

This question tested from Session 6, Reading 21, LOS f.

Question 29 - #143185

An exchange rate at which two parties agree to trade a specific amount of one currency for
another a year from today is called a:
A) forward exchange rate.
B) spot exchange rate.
C) real exchange rate.
Your answer: A was correct!

A forward exchange rate specifies the amount of two currencies that will be exchanged at a
specific point of time in the future. A transaction that uses the spot exchange rate is one that
would occur immediately. A real exchange rate is one that has been adjusted for the relative
inflation rates in two countries, and could be referring to an exchange rate that prevails at any
given time.

This question tested from Session 6, Reading 21, LOS a.

Question 30 - #89133

The following chart indicates the production possibilities of food and drink per day in Country A
and Country B.

Units of Output Per Day

Country A Country B
Food 4 8
Drink 6 7

Which of the following statements about the chart is most accurate?

Since B workers can produce more of food and drink than A workers, no gains from
A)
trade are possible.
Mutual gains could be realized from trade if A specialized in drink production and B
B)
specialized in the food production.
Mutual gains could be realized from trade if A specialized in food production and B
C)
specialized in drink production.
Your answer: A was incorrect. The correct answer was B) Mutual gains could be realized from
trade if A specialized in drink production and B specialized in the food production.

Mutual gains could be realized from trade if A specialized in drink production and B specialized
in food production. The reason centers on comparative advantage. Country A must give up 1.5
units of drink to produce one unit of food. Country B must give up 0.875 units of drink to
produce one unit of food. Therefore, the opportunity cost of producing food is greater for A than
for B. If B produces 8 units of food and A produces 6 units of drink, total production will be
greater than it would be if both countries produced both goods. By trading, both countries
benefit.

This question tested from Session 6, Reading 20, LOS c.

Question 31 - #138379

If the AUD/CAD spot exchange rate is 0.9875 and 60-day forward points are −25, the 60-day
AUD/CAD forward rate is closest to:

A) 0.9900.
B) 0.9850.
C) 0.9870.
Your answer: A was incorrect. The correct answer was B) 0.9850.

For an exchange rate quoted to four decimal places, forward points are expressed in units of
0.0001. The 60-day forward rate is 0.9850 + 0.0001(−25) = 0.9850. The CAD is trading at a 60-
day forward discount to the AUD.

This question tested from Session 6, Reading 21, LOS e.

Question 32 - #138357

The form of regional trading agreement (RTA) least likely to have the unintended negative effect
of reducing a member country’s low-cost imports from a non-member country is a:

A) free trade area.


B) common market.
C) customs union.
Your answer: A was correct!

A free trade area removes barriers to trade among its members but does not require any of its
members to change their trade policies with non-members. A common market and a customs
union both impose uniformity on trade rules with non-member nations, which could restrict a
member’s low-cost imports from a nation that is not a member.

This question tested from Session 6, Reading 20, LOS f.

Question 33 - #89132

The primary benefits derived from tariffs usually accrue to:

A) foreign producers of goods protected by tariffs.


B) domestic producers of export goods.
C) domestic suppliers of goods protected by tariffs.
Your answer: A was incorrect. The correct answer was C) domestic suppliers of goods
protected by tariffs.

Tariffs raise domestic prices, benefiting domestic suppliers.

This question tested from Session 6, Reading 20, LOS e.

Question 34 - #138256

If the spot exchange rate between the British pound and the U.S. dollar is GBP/USD 0.7775,
and the spot exchange rate between the Canadian dollar and the British pound is CAD/GBP
1.8325, what is the USD/CAD spot cross exchange rate?

A) 1.42477.
B) 0.42428.
C) 0.70186.
Your answer: A was incorrect. The correct answer was C) 0.70186.
First, convert GBP/USD 0.7775 to 1/0.7775 = USD/GBP 1.28617.

Then, divide USD/GBP 1.28617 by CAD/GBP 1.8325 = USD/CAD 0.70187.

This question tested from Session 6, Reading 21, LOS d.

Question 35 - #138358

Sales and purchases of non-produced, non-financial assets are included in which of a country’s
trade accounts?

A) Capital account.
B) Financial account.
C) Current account.
Your answer: A was correct!

The capital account consists of sales and purchases of non-produced, non-financial assets plus
capital transfers.

This question tested from Session 6, Reading 20, LOS g.

Question 36 - #140423

Which of the following lists of trading blocs is most accurately ordered by degree of economic
integration, from least to most integrated?

A) Free trade area, common market, customs union.


B) Customs union, economic union, monetary union.
C) Free trade area, economic union, common market.
Your answer: A was incorrect. The correct answer was B) Customs union, economic union,
monetary union.

The order by degree of economic integration (from least to most integrated) is as follows: free
trade areas, customs union, common market, economic union, and monetary union.

This question tested from Session 6, Reading 20, LOS f.

Question 37 - #89112

The table below outlines the possible tradeoffs of producing beer and cheese for Germany and
Holland.

Germany Holland
Cheese Beer Cheese Beer
0 10 0 6
5 0 4 0

Which of the following statements is most accurate?

A) Both countries would gain if Germany traded cheese for Holland's beer.
Germany would not gain from trade, because it has an absolute advantage in the
B)
production of both goods.
C) Both countries would gain if Germany traded beer for Holland's cheese.
Your answer: A was incorrect. The correct answer was C) Both countries would gain if Germany
traded beer for Holland's cheese.

Germany has an absolute advantage in both beer and cheese because it can produce more of
both than Holland. The opportunity cost of producing beer is 5/10 = 0.5 in Germany and 4/6 =
0.67 in Holland. The opportunity cost of producing cheese is 10/5 = 2 in Germany and 6/4 = 1.5
in Holland. Holland has a comparative advantage in producing cheese and Germany has a
comparative advantage in producing beer. Both countries gain if Germany trades beer for
Holland's cheese.

This question tested from Session 6, Reading 20, LOS c.

Question 38 - #147076

The sell side of the foreign exchange markets primarily consists of:

A) multinational banks.
B) retail investors.
C) accounting firms.
Your answer: A was correct!

The sell side of foreign exchange markets is primarily large multinational banks. They are the
primary dealers in currencies and originators of forward foreign exchange contracts.

This question tested from Session 6, Reading 21, LOS b.

Question 39 - #138356

Which of the following statements about the costs and benefits of international trade is most
accurate?

A) The costs of trade are greater than the benefits with regard to domestic employment.
B) Increased international trade benefits all groups in the trading countries.
The costs of trade primarily affect those in domestic industries that compete with
C)
imports.
Your answer: A was incorrect. The correct answer was C) The costs of trade primarily affect
those in domestic industries that compete with imports.

The benefits of trade are greater than the costs for the overall economy, but those in domestic
industries competing with imports may suffer costs in the form of reduced profits or employment.

This question tested from Session 6, Reading 20, LOS b.

Question 40 - #147082

If the current spot exchange rate for quotes of JPY/GBP is greater than the no-arbitrage 3-
month forward exchange rate, the 3-month GBP interest rate is:

A) equal to the 3-month JPY interest rate.


B) greater than the 3-month JPY interest rate.
C) less than the 3-month JPY interest rate.
Your answer: A was incorrect. The correct answer was B) greater than the 3-month JPY interest
rate.

. If the no-arbitrage forward JPY/GBP rate is less than the


spot rate, the interest rate for JPY must be less than the interest rate for GBP.

This question tested from Session 6, Reading 21, LOS f.

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