Reading 48: Dreaming With BRICs: The Path to 2050－LOS c employment, potential, emerging, economic, capital

tycoon

CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 17: Portfolio Management in a Global Context
Reading 48: Dreaming With BRICs: The Path to 2050
LOS c: Evaluate the importance of technological progress, employment growth, and growth in capital stock in estimating the economic potential of an emerging market.

tycoon

Which of the following best characterizes the relationship between technological advances, exchange rates, and economic output (in U.S. dollars) in emerging markets? Emerging countries currently utilize:

A) low amounts of technology but output will increase as more is used due in part to appreciating currencies.

B) low amounts of technology but output will increase as more is used. However, depreciating currencies will detract from growth.

C) normal amounts of technology but output will increase as more is used. However, depreciating currencies will detract from growth.

D) normal amounts of technology but output will increase as more is used due in part to appreciating currencies.

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Answer and Explanation

The rate of technological progress in emerging countries will eventually catch up to that in developed countries. Stronger technological progress should result in higher economic growth and a stronger currency. When measured in U.S. dollars, economic growth in developing countries will increase as a result of both growth itself and an appreciating currency.

tycoon

Which of the following best characterizes the relationship between technological progress, the growth in capital stock, and economic output in the BRIC countries?

A) Technological progress can have a large impact on economic growth but the growth in capital stock is less important for economic growth.

B) Both technological progress and the growth in capital stock can have a large impact on economic growth.

C) Neither technological progress nor the growth in capital stock have a large impact on economic growth.

D) The growth in capital stock can have a large impact on economic growth but technological progress is less important for economic growth.

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Answer and Explanation

Changes in technological progress can have a large impact on economic growth. The growth in capital stock is less important for economic growth than technological progress but does have an impact on economic growth. Reducing the projected growth in capital stock by 5% would reduce GDP levels by 13% in the BRIC countries in 2050.

tycoon

In which of the following BRIC countries is technological progress projected to be weaker?

A) Russia and China.

B) India and China.

C) Brazil and India.

D) Russia and Brazil.

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Answer and Explanation

In Brazil and India, technological progress is projected to be weaker than in China and Russia over the next 20 years because of a less educated workforce and a weaker infrastructure. Eventually though, technological progress in Brazil and India should converge to that in the developed world.

tycoon

Which of the following best characterizes the relationship between technological advances, exchange rates, and economic output (in U.S. dollars) in BRIC countries?

A) Technological progress results in depreciating currencies and technological progress in Russia may lag that of Brazil, due in part to a weaker infrastructure.

B) Technological progress results in appreciating currencies and technological progress in Brazil may lag that of Russia, due in part to a weaker infrastructure.

C) Technological progress results in appreciating currencies and technological progress in Russia may lag that of Brazil, due in part to a weaker infrastructure.

D) Technological progress results in depreciating currencies and technological progress in Brazil may lag that of Russia, due in part to a weaker infrastructure.

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Answer and Explanation

Stronger technological progress should result in higher economic growth and a stronger currency. In Brazil and India, technological progress is projected to be weaker than in China and Russia over the next 20 years because of a less educated workforce and a weaker infrastructure.

deqiang

thanks.