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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 481
During slowdown, risky assets:
Select an option first.
Correct answer: B — Often fall
Explanation: ✔ Why correct: Risky assets underperform after booms.
Question 482
During slowdown, bond yields:
Select an option first.
Correct answer: A — Rise
Explanation: ✔ Why correct: Bond prices fall due to inflation fears.
Question 483
During contraction, companies:
Select an option first.
Correct answer: B — Cut hours and lay off workers
Explanation: ✔ Why correct: Firms reduce labor costs.
Question 484
During contraction, investment:
Select an option first.
Correct answer: B — Falls
Explanation: ✔ Why correct: Firms cut investment during downturns.
Question 485
During contraction, consumer spending:
Select an option first.
Correct answer: B — Falls
Explanation: ✔ Why correct: Confidence declines, reducing spending.
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Question 486
During recovery, consumer spending:
Select an option first.
Correct answer: C — Begins to rise
Explanation: ✔ Why correct: Spending increases as confidence improves.
Question 487
During expansion, credit growth:
Select an option first.
Correct answer: C — Rises strongly
Explanation: ✔ Why correct: Credit expands during booms.
Question 488
During slowdown, credit growth:
Select an option first.
Correct answer: B — Decelerates
Explanation: ✔ Why correct: Credit growth slows as optimism fades.
Question 489
During contraction, credit conditions:
Select an option first.
Correct answer: A — Tighten
Explanation: ✔ Why correct: Banks tighten lending standards during downturns.
Question 490
During contraction, investors tend to prefer:
Select an option first.
Correct answer: B — Government securities and stable cash-flow companies
Explanation: ✔ Why correct: Investors value safety when economic risk rises, favoring government bonds and stable cash-flow firms (utilities, staples). ✘ Why others wrong: A: High-growth tech is riskier. C: Leverage increases bankruptcy risk. D: Commodities are volatile.
Question 491
Investors value safe assets more in contraction because:
Select an option first.
Correct answer: B — Marginal utility of safe income rises when employment is insecure
Explanation: ✔ Why correct: When job security falls, stable income streams become more valuable. ✘ Why others wrong: A: Inflation is not necessarily high. C: Bonds do not always outperform. D: Risky assets remain legal.
Question 492
The common rule for defining a recession is:
Select an option first.
Correct answer: B — Two consecutive quarters of negative real GDP growth
Explanation: ✔ Why correct: The widely cited rule is two consecutive quarters of negative real GDP growth. ✘ Why others wrong: A: Too short. C & D: May occur without recession.
Question 493
The “two-quarter rule” for recessions is misleading because:
Select an option first.
Correct answer: B — GDP can alternate between slightly positive and negative
Explanation: ✔ Why correct: A pattern like negative → slightly positive → negative would not count as recession under the rule. ✘ Why others wrong: A: GDP is measured quarterly. C & D: Not the main issue.
Question 494
The organization that dates U.S. business cycles is:
Select an option first.
Correct answer: C — National Bureau of Economic Research (NBER)
Explanation: ✔ Why correct: NBER’s Business Cycle Dating Committee determines official U.S. cycle dates. ✘ Why others wrong: A, B, D: They do not date cycles.
Question 495
NBER determines turning points by analyzing:
Select an option first.
Correct answer: B — Employment, industrial production, sales, and other data
Explanation: ✔ Why correct: NBER uses multiple macroeconomic series, not just GDP. ✘ Why others wrong: A: GDP alone is insufficient. C & D: Too narrow.
Question 496
NBER announcements often occur after turning points because:
Select an option first.
Correct answer: A — They wait for revised and reliable data
Explanation: ✔ Why correct: Data revisions and delays mean NBER confirms cycles retrospectively. ✘ Why others wrong: B: They do not forecast. C: They use many indicators. D: Timing is irregular.
Question 497
Credit cycles primarily describe fluctuations in:
Select an option first.
Correct answer: B — Availability and pricing of private sector credit
Explanation: ✔ Why correct: Credit cycles track lending conditions and credit growth. ✘ Why others wrong: A, C, D: Not the definition.
Question 498
Credit cycles matter because credit is essential for:
Select an option first.
Correct answer: B — Business investment and household real estate purchases
Explanation: ✔ Why correct: Credit finances investment and real estate, linking credit cycles to real activity. ✘ Why others wrong: A, C, D: Not central to credit cycles.
Question 499
When the economy weakens, lenders typically:
Select an option first.
Correct answer: B — Tighten credit and raise borrowing costs
Explanation: ✔ Why correct: Lenders become cautious, reducing availability and raising costs. ✘ Why others wrong: A, C, D: Opposite of typical behavior.
Question 500
Tightening credit conditions often cause:
Select an option first.
Correct answer: B — Falling asset values and higher defaults
Explanation: ✔ Why correct: Reduced credit depresses real estate and increases defaults. ✘ Why others wrong: A & C: Credit tightening reduces demand. D: Bankruptcy risk rises.
Question 501
Credit cycles are part of a broader category called:
Select an option first.
Correct answer: C — Commodity cycles
Explanation: ✔ Why correct: Credit cycles are a subset of financial cycles.
Question 502
Loose credit conditions contributed to:
Select an option first.
Correct answer: B — Multiple financial crises including 1980s Latam and 2008 GFC
Explanation: ✔ Why correct: The text lists several crises linked to loose credit. ✘ Why others wrong: A, C, D: Too narrow.
Question 503
Loose credit often leads to:
Select an option first.
Correct answer: B — Asset price and real estate bubbles
Explanation: ✔ Why correct: Easy credit inflates asset prices and can create bubbles. ✘ Why others wrong: A: Prices rise, not fall. C & D: Opposite.
Question 504
Financial frictions can cause business cycles to become:
Select an option first.
Correct answer: C — Amplified
Explanation: ✔ Why correct: Frictions deepen recessions and extend expansions. ✘ Why others wrong: A & B: Opposite. D: Not necessarily shorter.
Question 505
Recessions accompanied by financial disruptions tend to be:
Select an option first.
Correct answer: B — Longer and deeper
Explanation: ✔ Why correct: Financial stress worsens recessions. ✘ Why others wrong: A: Opposite. C & D: Incorrect.
Question 506
Recoveries with rapid credit growth tend to be:
Select an option first.
Correct answer: B — Strong
Explanation: ✔ Why correct: Credit expansion boosts recovery strength. ✘ Why others wrong: A, C, D: Opposite.
Question 507
Credit cycles compared to business cycles are generally:
Select an option first.
Correct answer: B — Longer, deeper, and sharper
Explanation: ✔ Why correct: Credit cycles typically exceed business cycles in duration and amplitude. ✘ Why others wrong: A: Opposite. C: Not identical. D: Not random.
Question 508
Credit cycles are not always synchronized with business cycles because:
Select an option first.
Correct answer: B — Financial variables behave differently
Explanation: ✔ Why correct: Financial variables follow their own dynamics. ✘ Why others wrong: A: Credit is crucial. C & D: Not the main reason.
Question 509
When contraction begins, companies first try to:
Select an option first.
Correct answer: B — Retain workers and cut overtime
Explanation: ✔ Why correct: Firms cut hours before cutting staff. ✘ Why others wrong: A: Layoffs come later. C & D: Opposite behavior.
Question 510
Companies may retain workers in contraction because:
Select an option first.
Correct answer: B — Training new workers is costly
Explanation: ✔ Why correct: Retention avoids future hiring/training costs. ✘ Why others wrong: A: Labor is not free. C: Recovery is uncertain. D: No such universal law.
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