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CFA Level I Economic Analysis Calculation Practice with Answers

Prepare for the CFA Level I exam with 50 Economic Analysis calculation questions, complete answers, and detailed explanations. Practice key formulas, improve your calculation skills, and build confidence in solving CFA-style economic problems.

Question 1
A central bank’s monetary policy is currently in a contractionary state. If the trend growth rate is 1.5% and the inflation target is 1.9%, then the policy rate must be:
Question 2
Emily, the advertising manager for Alpha Corporation, estimated that her company would sell 40,000 units of product and earn revenue of $500,000 for the year. However, the company sold 41,700 units generating revenue of $650,000. The marginal revenue per unit associated with advertising 41,700 units instead of40,000 units is:
Question 3
The following information relates to questions 3-4.
| Company | Sales ($ millions) |
| — | — |
| Alpha | 90 |
| Beta | 88 |
| Gamma | 85 |
| Delta | 83 |
| Zeta | 79 |
| Kappa | 65 |
A research analyst provides the following market share data for an emerging industry:
The industry’s four-firm concentration ratio is:
Question 4
If Alpha and Beta were to merge, the industry’s revised four-firm concentration ratio would be:
Question 5
Beta Manufacturing Corporation is a monopoly that has high barriers to entry in its industry. Its marginal cost is $225 and its average cost is $400. If the price elasticity of demand is 1.8, then Beta Corporation will most likely set its price at:
Question 6
The following information relates to questions 6-8.
A research analyst provides the following information about Gamma Corporation’s cost structure at various levels of output:
| Quantity (Q) | Total Fixed Cost (TFC) | Total Variable Cost (TVC) |
| — | — | — |
| 0 | 150 | 0 |
| 1 | 150 | 90 |
| 2 | 150 | 130 |
| 3 | 150 | 150 |
| 4 | 150 | 170 |
| 5 | 150 | 220 |
| 6 | 150 | 270 |
When 5 units of quantity are produced, the average fixed cost is:
Question 7
When Gamma Corporation increases production from 5 to 6 units, the marginal cost is:
Question 8
The level of unit production resulting in the lowest average total cost is:
Question 9
Lawrence, a tourist traveling from the United States to England, was told that 1 GBP will buy 1.0678 USD. From his perspective, the indirect exchange rate quote would be:
Question 10
Over a 3-year period, the nominal GDP for a country increased from $125 billion to $290 billion. Over that same time period, the GDP deflator increased from 108 to 188. For the given period, the country’s real GDP increased by:
Question 11
The following information relates to questions 11 – 12.
An analyst provides the following information about Delta Corporation’s labor utiliza- tion and production:
| Quantity (Q) | Total Fixed Cost (TFC) | Total Variable Cost (TVC) |
| — | — | — |
| 0 | 150 | 0 |
| 1 | 150 | 90 |
| 2 | 150 | 130 |
| 3 | 150 | 150 |
| 4 | 150 | 170 |
| 5 | 150 | 220 |
| 6 | 150 | 270 |
The number of workers resulting in the highest level of average product of labor is:
Question 12
The marginal product of labor shows increasing returns if the number of laborers is closest to but does not exceed:
Question 13
An exchange rate between two currencies has increased to 1.3750. If the base currency has appreciated by 5% against the price currency, the initial exchange rate between the two currencies was:
Question 14
If a country’s nominal GDP is $80,000,000 and it’s real GDP is $76,000,000, the GDP deflator is:
Question 15
A 3-month forward exchange rate for two currencies is listed by a dealer at 1.2127. She also quotes 3-month forward points as a percentage at 4.4%. The spot rate is:
Question 16
The following information relates to questions 16 -17.
A research analyst provides the following economic information for Country X.
| Category | Amount ($ billions) |
| — | — |
| Consumption | 11.4 |
| Government spending | 3.3 |
| Capital consumption allowance | 5.0 |
| Gross private domestic investment | 6.2 |
| Imports | 2.9 |
| Exports | 1.8 |
Based on the information provided, the gross domestic product of Country X is:
Question 17
Based on the information provided, the national income is:
Question 18
If the bid/offer quote from a currency dealer is 1.3020 – 1.3040 AUD/USD, then the bid/offer quote in USD/AUD terms is:
Question 19
The following information relates to questions 19 – 20.
A market study provides the following information regarding consumption baskets and prices over a period of two months:
### January 2017
| Item | Quantity | Price |
| —— | ——-: | ——-: |
| Cocoa | 55 kg | $0.85/kg |
| Timber | 70 kg | $0.50/kg |
### February 2017
| Item | Quantity | Price |
| —— | ——-: | ——-: |
| Cocoa | 105 kg | $0.70/kg |
| Timber | 65 kg | $0.90/kg |
Assuming the base period for 2017 consumption is January and the initial price index is 100, the inflation rate after calculating the February price index as a Laspeyres index is:
Question 20
For the February consumption basket, the value of the Paasche index is:
Question 21
If an economy’s GDP deflator values for 2014 and 2016 were 112 and 144, respectively, then the annual growth rate of the overall price level is:
Question 22
A currency dealer provides the following quotes:
| Ratio | Spot Rate |
| ——- | ——–: |
| CAD/GBP | 0.5921 |
| CAD/EUR | 0.7732 |
The spot EUR/GBP cross-rate is:
Question 23
Epsilon Manufacturing Co. recorded the following transactions last year:
| Transaction | Amount ($ millions) |
| — | — |
| Purchased raw materials from France | 33.5 |
| Paid legal fees | 2.3 |
| Donated to a charity in Asia | 0.5 |
| Sold goods in Mexico | 42.1 |
| Received interest payment from foreign bond | 4.4 |
| Received royalties from branch in Indonesia | 1.2 |
These transactions will increase Epsilon Manufacturing Co.’s current account by:
Question 24
Assume that the nominal spot exchange rate (CAD/GBP) increases by 6.95%, the British price level decreases by 3.9%, and the Canadian price level increases by 1.2%. The change in the real exchange rate is:
Question 25
25. Consider the following economic information for Country Y:
| Category | Amount ($ billions) |
| — | — |
| National income | 19.4 |
| Consumption expenditures | 3.5 |
| Indirect business taxes | 6.3 |
| Corporate income taxes | 2.1 |
| Interest paid by consumers to business | 2.3 |
| Undistributed corporate profits | 3.4 |
| Transfer payments | 2.3 |
Based on the information provided, personal income is:
Question 26
The following information relates to questions 26 – 27.
A currency dealer provides the following information:
| | Spot Rate | Expected Spot Rate in One Year |
| — | — | — |
| USD/CAD | 1.0425 | 1.0157 |
| AUD/GBP | 1.4890 | 1.4495 |
Based on the information provided, the Canadian dollar is expected to appreciate
against the US dollar over the next year by:
Question 27
Based on the information provided, the Australian dollar is expected to appreciate against the British pound over the next year by:
Question 28
The Adams household has a weekly budget of $85 to spend on fish and beef. Per pound, the price of fish is $5.25 and the price of beef is $9.75. The quantity of fish consumed is 10% less than that of beef. The quantity of fish consumed by the household in a week is:
Question 29
A spot rate for two currencies is listed by a dealer at 0.2947. If the 6-month forward rate is 0.3191, the 6-month forward points are:
Question 30
If the tax rate is 30%, and the marginal propensity to spend is 85%, then the fiscal multiplier is:
Question 31
If the price of a product increases from $50 to $55 and the price elasticity of demand is 0.5, then the quantity demanded fell by.
Question 32
If the income elasticity of demand for a product is 0.65, then if income were to rise by 1%, the quantity demanded at each price would rise by
Question 33
The following information relates to questions 33-34.
A research analyst provides the following economic information for Country Z:
| Category | Amount ($ millions) |
| — | — |
| Personal disposable income | 15.4 |
| Consumption expenditures | 3.5 |
| Indirect business taxes | 6.3 |
| Interest paid by consumers to business | 2.3 |
| Undistributed corporate profits | 3.4 |
| Personal transfer payments to foreigners | 5.8 |
Based on the information provided, household saving is:
Question 34
Based on the information provided, the Country Z saving rate is:
Question 35
If the price of a product increases by 15%, the quantity demanded for the product increases by 35%. The price elasticity of demand is:
Question 36
If a 7% change in nominal wages results in a 2% change in productivity, then the percent change in unit labor cost is:
Question 37
If the net tax rate is 30%, then for every $1 increase in national income, the household
disposable income will:
Question 38
If the price of a gallon of gasoline increases from $2.10 to $2.20, then demand decreases
from 50,000 gallons to 48,000 gallons. The price elasticity of demand is:
Question 39
A research analyst provides the following economic information for Country X:
| Category | Amount |
| — | — |
| Nominal GDP | $11.2 trillion |
| Real GDP | $8.8 trillion |
| Aggregate hours of labor | 200 billion |
Based on the information provided, labor productivity is:
Question 40
If an economy has an inflation target of 1.8% and a sustainable long-term growth rate
of 2.4%, the neutral rate is:
Question 41
The following information relates to questions 41 – 42.
A market study provides the following market share data for a five-company industry:
| Company | Market Share (%) |
| — | — |
| Alpha | 40 |
| Beta | 25 |
| Gamma | 20 |
| Delta | 10 |
| Epsilon | 5 |
The industry’s three-firm Herfindahl-Hirschmann Index is:
Question 42
If Alpha and Beta were to merge, the industry’s revised three-firm Herfindahl-Hirschmann Index would be:
Question 43
If the net tax rate is 25%, then for every $1 increase in national income, the net tax
revenue will:
Question 44
If the reserve requirement for Epsilon bank is 5%, and $40,000 could be created from
today’s deposits, then the deposits must be equal to:
Question 45
Sigma Publishing Corporation has provided the following information regarding the
cost of producing a textbook:
| Stage of Production | Sales Value ($) |
| — | — |
| **1. Production materials** | |
| Paper | $1.50 |
| Ink | $0.25 |
| Binding supplies | $1.10 |
| **2. Assembling each book** | $2.00 |
| **3. Wholesale price for booksellers** | $6.00 |
| **4. Retail price** | $12.00 |
According to the value-added method, the contribution of textbook production to
GDP is:
Question 46
Workers at Kappa Corporation are paid $12 per hour to produce 85 units of product in
an hour. However, if the company utilizes emerging technologies, workers will be able
to produce 130 units per hour. At the increased level of production, the new labor cost
per unit will:
Question 47
If a country’s labor force is growing 3.4% per year and productivity per worker is decreasing 2.1% per year, then potential GDP is:
Question 48
The following information relates to questions 48 – 49.
Assume that income is $100, income tax is $25, disposable income is $75, consumption is $65, and saving is $10.
Based on the information provided, the mar able income is:
Question 49
Based on the information provided, the marginal propensity to save out of disposable income is:
Question 50
If the yield on a 5-year nominal bond of Country X is 4.75%, and the yield on a 5-year inflation-protected bond is 2.35%, then an analyst can conclude that the market is pric- ing average annual inflation over the next 5 years to be: