Question 5

James Biggs, is a CFA candidate preparing for the upcoming Level III exam. He is also currently working full time as an intern in the training program at Waverly Brothers, a large investment banking firm in New York. During the course of the two year program, he will spend eight weeks in each of the major areas of the company. This week, Biggs is beginning his rotation in the research department, where he has been assigned to work under the guidance of Alicia Carroll, a senior economist at the company.

Carroll has been with Waverly Brothers for nearly twenty years, and is herself a graduate of their training program. She believes the best way to instruct the interns is through the assignment of a “real life” task that is similar in nature to what is expected of actual employees of the firm. Carroll has asked Biggs to prepare an evaluation of the current economic climate of Qatar, a small, Middle Eastern country who has emerged in recent years as a major producer and exporter of oil and other petroleum-based products. She believes that information on this relatively new entrant to the market will be helpful in assessing the global energy situation and providing valuable information to those clients of the firm that may have energy holdings.

As a starting point, Carroll presents Biggs with the available economic data on Qatar. In his analysis, she would like him to consider such factors as the country’s economic activity and projected productivity. Prior to the discovery of oil within their borders, the geographically small country had little economic activity and was largely undeveloped. Historically, the government of Qatar has not actively attempted to stabilize the country’s economy through monetary policy, but instead had taken a rather passive approach. Due to their oil production, rapid expansion of the country’s economy is anticipated for several more years to come. Carroll recommends that Biggs search for any demographic trends and their possible effect on the country’s economy. Lastly, Biggs should be prepared to analyze the government of Qatar’s stance on monetary policy, and the potential ramifications of the policy on the growth of the country’s economy.

Select economic data for Qatar as of 12/31/06 (in millions of Q$):

Part 1)

In addition to its oil production within its own borders, the government of Qatar also has a significant investment in wells in a neighboring country. Which of the following statements is most accurate?

A)   The productivity of a Qatar-owned company not located within their own geographic borders would not be included in their Gross National Income (GNI) measure.

B)   The productivity of a Qatar-owned company not located within their own geographic borders would not be included in their Gross Domestic Product (GDP) measure.

C)   The productivity of a Qatar-owned company not located within their own geographic borders would not be included in their Net National Income (NNI) measure.

D)   The productivity of a Qatar-owned company not located within their own geographic borders would be included in their Gross Domestic Product (GDP) measure.

Part 2)

The three productivity measures of a country are output, expenditure and income. Which of the following statements regarding these three measures is most accurate?

A)   Expenditure data is expressed as an index, with a designated base year’s expenditures set equal to 100, and subsequent years expressed as a percentage of the base year.

B)   Output is considered to be the most reliable measure, while expenditure is regarded as the least reliable.

C)   Income includes all earnings of worker and trading profits of corporate endeavors, and excludes rental income.

D)   Output is measured as the net value added (total production less total cost) of all business in a country in a year.

Part 3)

Calculate the GDP of Qatar based upon the information given above:

A)   Q$29,430,000.

B)   Q$26,150,000.

C)   Q$20,250,000.

D)   Q$32,710,000.

Part 4)

Biggs reads online that after nearly a decade of economic expansion, the government of Qatar is considering enacting a more restrictive monetary policy. Which of the following scenarios is most likely to occur in response to this change in policy?

A)   Any subsequent downturn in the economy will be exaggerated by the restrictive policy.

B)   Any subsequent downturn in the economy will be less severe in response to the restrictive policy.

C)   Any subsequent downturn in the economy will be not be impacted whatsoever by the restrictive policy.

D)   Any subsequent downturn in the economy will be prevented by the restrictive policy.

Part 5)

Which of the following statements are legitimate reasons for imposing trading restrictions with trading partners?

A)   Trade barriers protect jobs.

B)   Developing industries should be protected while they get up to world standards of productivity and quality.

C)   Trade restrictions create jobs.

D)   Trade with low-wage countries depresses wage rates in high-wage countries.

Part 6)

Assuming the U.S. has a comparative advantage over Qatar in producing cars and trades cars in exchange for oil with Qatar which of the following results are most likely?

A)   Each country can consume at a point outside its production possiblity frontier.

B)   An import quota on U.S. cars is necessary to protect the car manufacturing industry in Qatar.

C)   A tarif would be more harmful than a quota in either country.

D)   Voluntary export restraints (VER) will allow firms with import licenses to accrue gains.

答案和详解如下！

Question 5

James Biggs, is a CFA candidate preparing for the upcoming Level III exam. He is also currently working full time as an intern in the training program at Waverly Brothers, a large investment banking firm in New York. During the course of the two year program, he will spend eight weeks in each of the major areas of the company. This week, Biggs is beginning his rotation in the research department, where he has been assigned to work under the guidance of Alicia Carroll, a senior economist at the company.

Carroll has been with Waverly Brothers for nearly twenty years, and is herself a graduate of their training program. She believes the best way to instruct the interns is through the assignment of a “real life” task that is similar in nature to what is expected of actual employees of the firm. Carroll has asked Biggs to prepare an evaluation of the current economic climate of Qatar, a small, Middle Eastern country who has emerged in recent years as a major producer and exporter of oil and other petroleum-based products. She believes that information on this relatively new entrant to the market will be helpful in assessing the global energy situation and providing valuable information to those clients of the firm that may have energy holdings.

As a starting point, Carroll presents Biggs with the available economic data on Qatar. In his analysis, she would like him to consider such factors as the country’s economic activity and projected productivity. Prior to the discovery of oil within their borders, the geographically small country had little economic activity and was largely undeveloped. Historically, the government of Qatar has not actively attempted to stabilize the country’s economy through monetary policy, but instead had taken a rather passive approach. Due to their oil production, rapid expansion of the country’s economy is anticipated for several more years to come. Carroll recommends that Biggs search for any demographic trends and their possible effect on the country’s economy. Lastly, Biggs should be prepared to analyze the government of Qatar’s stance on monetary policy, and the potential ramifications of the policy on the growth of the country’s economy.

Select economic data for Qatar as of 12/31/06 (in millions of Q$):

Part 1)

In addition to its oil production within its own borders, the government of Qatar also has a significant investment in wells in a neighboring country. Which of the following statements is most accurate?

A)   The productivity of a Qatar-owned company not located within their own geographic borders would not be included in their Gross National Income (GNI) measure.

B)   The productivity of a Qatar-owned company not located within their own geographic borders would not be included in their Gross Domestic Product (GDP) measure.

C)   The productivity of a Qatar-owned company not located within their own geographic borders would not be included in their Net National Income (NNI) measure.

D)   The productivity of a Qatar-owned company not located within their own geographic borders would be included in their Gross Domestic Product (GDP) measure.

The correct answer was B) The productivity of a Qatar-owned company not located within their own geographic borders would not be included in their Gross Domestic Product (GDP) measure.

GDP only counts goods and services produced in a country by its citizens. GNI, and therefore NNI, includes income earned by its citizens regardless of where the assets are located.

This question tested from Session 4, Reading 20, LOS a

Part 2)

The three productivity measures of a country are output, expenditure and income. Which of the following statements regarding these three measures is most accurate?

A)   Expenditure data is expressed as an index, with a designated base year’s expenditures set equal to 100, and subsequent years expressed as a percentage of the base year.

B)   Output is considered to be the most reliable measure, while expenditure is regarded as the least reliable.

C)   Income includes all earnings of worker and trading profits of corporate endeavors, and excludes rental income.

D)   Output is measured as the net value added (total production less total cost) of all business in a country in a year.

The correct answer was D) Output is measured as the net value added (total production less total cost) of all business in a country in a year.

Output is measures as the net value added, is expressed as an index, and is considered to be the most reliable of the three measures.

This question tested from Session 4, Reading 20, LOS a

Part 3)

Calculate the GDP of Qatar based upon the information given above:

A)   Q$29,430,000.

B)   Q$26,150,000.

C)   Q$20,250,000.

D)   Q$32,710,000.

The correct answer was A) Q$29,430,000.

Working backwards: NNI + depreciation – net property income from abroad = GDP Q$27,000,000 + 4,590,000 – 2,160,000 = Q$29,430,000

This question tested from Session 4, Reading 20, LOS a

Part 4)

Biggs reads online that after nearly a decade of economic expansion, the government of Qatar is considering enacting a more restrictive monetary policy. Which of the following scenarios is most likely to occur in response to this change in policy?

A)   Any subsequent downturn in the economy will be exaggerated by the restrictive policy.

B)   Any subsequent downturn in the economy will be less severe in response to the restrictive policy.

C)   Any subsequent downturn in the economy will be not be impacted whatsoever by the restrictive policy.

D)   Any subsequent downturn in the economy will be prevented by the restrictive policy.

The correct answer was A) Any subsequent downturn in the economy will be exaggerated by the restrictive policy.

Historical experience has shown that a restrictive monetary policy after a period of economic prosperity has exaggerated the subsequent downturn in the economy and the stock market.

This question tested from Session 4, Reading 20, LOS a

Part 5)

Which of the following statements are legitimate reasons for imposing trading restrictions with trading partners?

A)   Trade barriers protect jobs.

B)   Developing industries should be protected while they get up to world standards of productivity and quality.

C)   Trade restrictions create jobs.

D)   Trade with low-wage countries depresses wage rates in high-wage countries.

The correct answer was B) Developing industries should be protected while they get up to world standards of productivity and quality.

Protecting developing industries through trade restrictions has some support from economists. The other arguments for trade restrictions have very little support among economists. The number of jobs protected by import restrictions will be offset by jobs lost in other industries. In the long run trade restrictions do not create jobs and in fact limit trading partner's ability to develop purchasing power needed to buy exports thus exporting jobs are not created, domestic prices are higher thus sales of domestic goods are lower further reducing jobs. As long as countries are trading products in which they have a comparative adavantage both countries will benefit and the higher wage country will not see a decrease in their wages.

This question tested from Session 4, Reading 20, LOS a

Part 6)

Assuming the U.S. has a comparative advantage over Qatar in producing cars and trades cars in exchange for oil with Qatar which of the following results are most likely?

A)   Each country can consume at a point outside its production possiblity frontier.

B)   An import quota on U.S. cars is necessary to protect the car manufacturing industry in Qatar.

C)   A tarif would be more harmful than a quota in either country.

D)   Voluntary export restraints (VER) will allow firms with import licenses to accrue gains.

The correct answer was A) Each country can consume at a point outside its production possiblity frontier.

Since each country has a comparative advantage in their respective industies both countries will benefit through trading with each other by allowing each country to consume more than they had without trading. Quotas are more harmful than tariffs because the government does not receive any funds from imposing a quota whereas the importers receive higher prices for all goods sold under the import license. VERs allow the firms exporting the goods with export permits to accrue gains not the importing firm which would instead need an import license related to a quota. An import quota would only be effective if the car industry in Qatar was in a developing stage.

This question tested from Session 4, Reading 20, LOS a

非常感谢！

晕，好麻烦，偶在国外啊

great

thanks

非常感谢！

Cool!

appreciate your help

many thanks