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Free Questions › CFA › Economics
Free CFA Economics Practice Questions & Answers
2,050 exam-style Economics questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 421
Business cycles occur mainly in economies that:
Select an option first.
Correct answer: B — Organize work mainly in business enterprises
Explanation: ✔ Why correct: Business cycles are typical of market-based, enterprise-driven economies.
Question 422
Business cycles are recurrent but not periodic, meaning:
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Correct answer: B — They repeat with varying duration and intensity
Explanation: ✔ Why correct: Cycles recur but do not follow a fixed schedule.
Question 423
The two broad phases of the business cycle are:
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Correct answer: C — Expansion and contraction
Explanation: ✔ Why correct: Expansion (upswing) and contraction (downturn) are the core phases.
Question 424
A peak in the business cycle represents:
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Correct answer: B — The highest point before contraction
Explanation: ✔ Why correct: A peak is the turning point before a downturn.
Question 425
A trough represents:
Select an option first.
Correct answer: C — The lowest point before recovery
Explanation: ✔ Why correct: A trough is the lowest point before recovery begins.
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Question 426
Classical cycles measure fluctuations in:
Select an option first.
Correct answer: C — Level of economic activity
Explanation: ✔ Why correct: Classical cycles track absolute levels of activity.
Question 427
A limitation of the classical cycle is that:
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Correct answer: C — It does not separate long-term trends from short-term fluctuations
Explanation: ✔ Why correct: Classical cycles do not distinguish trend vs. cycle.
Question 428
The growth cycle focuses on fluctuations:
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Correct answer: C — Around long-term trend growth
Explanation: ✔ Why correct: Growth cycles measure deviations from trend output.
Question 429
Growth cycle peaks occur:
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Correct answer: A — Earlier than classical cycle peaks
Explanation: ✔ Why correct: Growth cycle peaks generally appear earlier.
Question 430
The growth rate cycle focuses on fluctuations in:
Select an option first.
Correct answer: C — GDP growth rate
Explanation: ✔ Why correct: It tracks changes in the rate of growth.
Question 431
A key advantage of the growth rate cycle is:
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Correct answer: D — It does not require estimating long-run trend
Explanation: ✔ Why correct: Growth rate cycles avoid trend estimation.
Question 432
In the recovery phase, actual output is:
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Correct answer: B — At its lowest relative to potential
Explanation: ✔ Why correct: Recovery begins at the trough.
Question 433
During recovery, economic activity:
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Correct answer: D — Begins to increase
Explanation: ✔ Why correct: Recovery means activity starts rising.
Question 434
During expansion, actual output:
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Correct answer: C — Rises above potential
Explanation: ✔ Why correct: Expansion pushes output above potential.
Question 435
A boom phase is characterized by:
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Correct answer: B — Output above potential
Explanation: ✔ Why correct: Booms occur when output exceeds potential.
Question 436
During slowdown, the output gap:
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Correct answer: B — Starts to narrow
Explanation: ✔ Why correct: Slowdown begins when the positive gap narrows.
Question 437
During slowdown, growth is:
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Correct answer: C — Decelerating
Explanation: ✔ Why correct: Growth slows but may remain positive.
Question 438
During contraction, actual output:
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Correct answer: C — Falls below potential
Explanation: ✔ Why correct: Contraction creates a negative output gap.
Question 439
A recession occurs when:
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Correct answer: D — Output declines significantly
Explanation: ✔ Why correct: Recession = falling economic activity.
Question 440
In recovery, employment:
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Correct answer: C — Remains high but stabilizes
Explanation: ✔ Why correct: Layoffs slow first; hiring lags.
Question 441
In expansion, companies:
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Correct answer: C — Increase hiring and investment
Explanation: ✔ Why correct: Expansion boosts hiring and investment.
Question 442
In slowdown, companies often:
Select an option first.
Correct answer: D — Rely on overtime instead of new hires
Explanation: ✔ Why correct: Firms hesitate to hire during slowdown.
Question 443
In contraction, companies first:
Select an option first.
Correct answer: C — Cut hours and overtime
Explanation: ✔ Why correct: Cutting hours precedes layoffs.
Question 444
Inflation during recovery is:
Select an option first.
Correct answer: D — Moderate
Explanation: ✔ Why correct: Early recovery is not strongly inflationary.
Question 445
Inflation during expansion:
Select an option first.
Correct answer: A — Picks up modestly
Explanation: ✔ Why correct: Demand strengthens, raising inflation.
Question 446
Inflation during slowdown:
Select an option first.
Correct answer: C — Decelerates
Explanation: ✔ Why correct: Inflation slows as demand cools.
Question 447
Inflation during contraction:
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Correct answer: B — Decelerates with a lag
Explanation: ✔ Why correct: Prices adjust slowly downward.
Question 448
Leads and lags occur because:
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Correct answer: C — Firms wait for confirmation before hiring
Explanation: ✔ Why correct: Businesses are cautious early in recovery.
Question 449
Equity markets typically bottom:
Select an option first.
Correct answer: A — Before the economy
Explanation: ✔ Why correct: Equity markets are leading indicators.
Question 450
During early recovery, risky assets:
Select an option first.
Correct answer: D — Are repriced upward
Explanation: ✔ Why correct: Markets anticipate higher profits.
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