Monetary Policy & Inflation?

CFA Level I
#1

Que 1: The short-run effects of an unanticipated expansionary monetary policy are most likely to include A) a decrease in the inflation rate B) a decrease in the real interest rate C) a decrease in real output and employment D) an increase in short term money interest rate

#2

Q2: According to the adaptive expectations hypothesis, when the inflation rate is increasing, individuals would be most likely to A) overestimate the future inflation rate B) underestimate the future inflation rate C) assume the future inflation rate will eventually decline D) assume the future inflation rate will continue to accelerate

#3

B because say for example the Fed cuts interest rates unexpectedly, then interest rates are lower and more money flows into the economy…(lending money is cheaper for the consumer)

#4

hmmm… remind me about the adaptive expectations hypothesis…i would guess D?

#5

hmmm with q2, im guessing C? (since thet will ‘adapt’ to it??)

#6

My reaction exactly with Que 2, when I saw it…If I get a few more confirmations, I am inclining towards…maybe adaptive expectations hypothesis was truncated from L1 this year…so I will not bother looking for it.

#7

delhi, I don’t think AE is in the curriculum this year.

#8

lola, are you sure it’s not in the curriculum? I remember seeing some questions about this, but can’t remember the source…

#9

1st Q: B… Also… Employment should increase

#10

what is answer to Q2?

#11

I would say A or D for Q2

#12

Ans for both is B…

#13

yep… I was way off on 2

#14

rjs157 Wrote: ------------------------------------------------------- > lola, > > are you sure it’s not in the curriculum? I > remember seeing some questions about this, but > can’t remember the source… rjs, I believe adaptive expectations was in the 2006 curriculum, so you might have been looking at older questions. I’m 90% sure it’s not in this year’s curriculum, but if someone can confirm this for sure, that would be great.

#15

I finished scanning schweser…there is no mention of AE. I have relied solely on schweser for econ. If someone has worked through the’07 CFAI text, and can confirm or deny whether AE is included in those, that would be super. These questions are from CFAI '06 sample exams. Iam hoping bunch of this stuff has been left out, 'coz I did really poorly in the econ section. 4 tests, I scored less than 55% in econ in all of them. I feel like S#*t…

#16

I don’t remember seeing Adaptive expectations either…

#17

I did a quick scan of the CFAI text (Econ) and didn’t see anything

#18

Adaptive expectations just means that people base future expectations on what has happened in the past. If inflation has increased in the past, they will assume that it will continue to increase in the future. I’d go with D.

#19

delihrocks- to confirm, ans. to Q2 is B, correct?

#20

JoeyDVivre Wrote: ------------------------------------------------------- > Adaptive expectations just means that people base > future expectations on what has happened in the > past. If inflation has increased in the past, > they will assume that it will continue to increase > in the future. I’d go with D. Yep - I guess it’s B. The just use some average of past inflation… Oops.