CME study quiz questions with complete solutions

7 - Step Process to Formulate CME CORRECT ANSWERS: 1. Determine CME needed based on objectives, horizon, etc 2. Investigate historical performance 3. ID Valuation Model Needed 4. Collect Data 5. Use experience/judgement to interpret environment/employ valuation 6. Formulate CME 7. Monitor performance / refine 9 Problems with Forecasting CORRECT ANSWERS: 1. Economic Data Limitations 2. Data Measurements Errors/Biases 3. Limitations of Historical Data 4. Ex-Post Data 5. Data-mining 6. Conditioning Information 7. Misinterpretation of Correlations 8. Psychological Biases 9. Model Uncertainty Exogenous Shock CORRECT ANSWERS: Unexpected shock likely not factored into models. Examples include changes in gov policy, political events, technological progress, natural disasters, discovery of natural resources, financial crises Can lower trend rate growth Cobb Douglas CORRECT ANSWERS: Econ Growth = Labor Input + Capital Per Worker + Total Factor Productivity Labor Input = Population Growth + Labor Force Participation Growth Approaches to Economic Forecasting: Econometric Modeling CORRECT ANSWERS: -formal and mathematical; complex -basic forms: structural and reduced form -Subject to estimation errors Approaches to Economic Forecasting: Economic Indicators CORRECT ANSWERS: -Leading vs coincident vs lagging -simple, data available and can be tailored