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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 601
Economic shocks such as oil price jumps:
Select an option first.
Correct answer: B — Can disrupt stabilization efforts
Explanation: ✔ Why correct: Shocks can derail policy goals. ✘ Why others wrong: A: False. C: Shocks are unpredictable. D: Fiscal policy cannot control them.
Question 602
Poorly designed government policies can:
Select an option first.
Correct answer: B — Exacerbate expansions and cause damage
Explanation: ✔ Why correct: History shows policy mistakes can worsen cycles. ✘ Why others wrong: A & D: Not true. C: Policies do affect the economy.
Question 603
Fiscal policy affects aggregate demand by influencing:
Select an option first.
Correct answer: C — Household and business spending
Explanation: ✔ Why correct: Taxes and spending directly affect consumption and investment. ✘ Why others wrong: A, B, D: Too narrow.
Question 604
Cutting personal income taxes is an example of:
Select an option first.
Correct answer: B — Expansionary fiscal policy
Explanation: ✔ Why correct: Tax cuts raise disposable income and demand. ✘ Why others wrong: A: Opposite. C: Not neutral. D: Not monetary.
Question 605
Cutting sales taxes raises aggregate demand because:
Select an option first.
Correct answer: B — It raises real incomes by lowering prices
Explanation: ✔ Why correct: Lower prices increase real purchasing power. ✘ Why others wrong: A & C: Opposite. D: Sales tax cuts reduce revenue.
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Question 606
Cutting corporate taxes may increase:
Select an option first.
Correct answer: A — Business profits and capital spending
Explanation: ✔ Why correct: Higher profits encourage investment. ✘ Why others wrong: B, C, D: Not the primary effect.
Question 607
New public spending on infrastructure is:
Select an option first.
Correct answer: B — Expansionary
Explanation: ✔ Why correct: Government spending raises incomes and demand. ✘ Why others wrong: A: Opposite. C & D: Incorrect.
Question 608
Keynesians believe fiscal policy:
Select an option first.
Correct answer: B — Has powerful effects when spare capacity exists
Explanation: ✔ Why correct: Keynesians argue fiscal policy boosts demand when resources are idle. ✘ Why others wrong: A, C, D: Not Keynesian views.
Question 609
Monetarists believe fiscal policy:
Select an option first.
Correct answer: A — Has only temporary effects
Explanation: ✔ Why correct: Monetarists argue fiscal effects fade and monetary policy is more effective. ✘ Why others wrong: B & C: Opposite. D: Not their claim.
Question 610
Monetarists generally prefer using:
Select an option first.
Correct answer: B — Monetary policy for controlling inflation
Explanation: ✔ Why correct: Monetarists emphasize monetary policy as the key tool. ✘ Why others wrong: A, C, D: Not their primary focus.
Question 611
Expansionary fiscal policy during recession includes:
Select an option first.
Correct answer: C — Increasing government spending
Explanation: ✔ Why correct: Higher spending boosts demand and employment. ✘ Why others wrong: A & B: Contractionary. D: Monetary policy.
Question 612
Contractionary fiscal policy during a boom includes:
Select an option first.
Correct answer: C — Raising taxes and reducing spending
Explanation: ✔ Why correct: Reducing demand helps cool an overheating economy. ✘ Why others wrong: A & B: Expansionary. D: Monetary policy.
Question 613
A budget surplus occurs when:
Select an option first.
Correct answer: B — Revenue exceeds spending
Explanation: ✔ Why correct: Surplus = revenue > spending. ✘ Why others wrong: A: Deficit. C & D: Not definitions.
Question 614
A rising budget surplus indicates:
Select an option first.
Correct answer: B — Contractionary fiscal policy
Explanation: ✔ Why correct: Higher surplus = tighter fiscal stance. ✘ Why others wrong: A: Opposite. C & D: Not correct.
Question 615
A rising budget deficit indicates:
Select an option first.
Correct answer: B — Expansionary fiscal policy
Explanation: ✔ Why correct: Higher deficit = more stimulus. ✘ Why others wrong: A: Opposite. C & D: Incorrect.
Question 616
Automatic stabilizers work by:
Select an option first.
Correct answer: B — Responding automatically to economic conditions
Explanation: ✔ Why correct: They adjust spending/taxes automatically as the economy changes. ✘ Why others wrong: A: No legislation needed. C: They reduce, not eliminate cycles. D: Monetary policy.
Question 617
Rising unemployment benefits during recession are an example of:
Select an option first.
Correct answer: B — Automatic stabilizers
Explanation: ✔ Why correct: Benefits rise automatically as unemployment rises. ✘ Why others wrong: A: Not discretionary. C & D: Incorrect.
Question 618
Rising tax revenues during a boom are an example of:
Select an option first.
Correct answer: A — Automatic stabilizers
Explanation: ✔ Why correct: Higher incomes automatically raise tax receipts. ✘ Why others wrong: B: Not discretionary. C & D: Not the mechanism.
Question 619
Automatic stabilizers reduce output fluctuations because:
Select an option first.
Correct answer: B — They respond without delays
Explanation: ✔ Why correct: They adjust automatically, smoothing cycles. ✘ Why others wrong: A: No action needed. C & D: Not true.
Question 620
Discretionary fiscal policy refers to:
Select an option first.
Correct answer: C — Active decisions to change taxes or spending
Explanation: ✔ Why correct: Discretionary = deliberate policy changes. ✘ Why others wrong: A & B: Automatic stabilizers. D: Not fiscal.
Question 621
A balanced budget occurs when:
Select an option first.
Correct answer: A — Spending equals revenue
Explanation: ✔ Why correct: Balanced = spending = revenue. ✘ Why others wrong: B & C: Surplus/deficit. D: Not required.
Question 622
Government deficits represent:
Select an option first.
Correct answer: B — Annual difference between spending and revenue
Explanation: ✔ Why correct: Deficit = spending – revenue for a year. ✘ Why others wrong: A: Debt is accumulated deficits. C & D: Not definitions.
Question 623
Government debt represents:
Select an option first.
Correct answer: B — Accumulated past deficits
Explanation: ✔ Why correct: Debt is the accumulation of past deficits. ✘ Why others wrong: A, C, D: Incorrect.
Question 624
Government deficits are financed by:
Select an option first.
Correct answer: B — Borrowing from the private sector
Explanation: ✔ Why correct: Governments issue bonds purchased by private investors. ✘ Why others wrong: A: Not the primary method. C & D: Not financing mechanisms.
Question 625
A large stock of government debt may be owned by:
Select an option first.
Correct answer: C — The private sector
Explanation: ✔ Why correct: Private investors often hold government bonds. ✘ Why others wrong: A & B: Not exclusively. D: Impossible.
Question 626
The real value of government debt falls when:
Select an option first.
Correct answer: A — Inflation rises
Explanation: ✔ Why correct: Inflation reduces the real burden of nominal debt. ✘ Why others wrong: B: Deflation increases real burden. C & D: Not the main effect.
Question 627
The debt-to-GDP ratio may fall even if debt stays constant when:
Select an option first.
Correct answer: B — Nominal GDP rises
Explanation: ✔ Why correct: Higher nominal GDP reduces the ratio. ✘ Why others wrong: A: Ratio rises. C & D: Not sufficient.
Question 628
Rising net interest payments can cause:
Select an option first.
Correct answer: B — Loss of investor confidence
Explanation: ✔ Why correct: High interest burdens raise default concerns. ✘ Why others wrong: A: Opposite. C & D: Not effects.
Question 629
One argument against worrying about national debt is:
Select an option first.
Correct answer: B — Debt is often owed internally
Explanation: ✔ Why correct: Internal debt means citizens owe it to themselves. ✘ Why others wrong: A, C, D: Incorrect.
Question 630
Countries like Japan and South Korea have high internal ownership of debt, meaning:
Select an option first.
Correct answer: B — Most debt is held by residents
Explanation: ✔ Why correct: Over 90% is owned domestically. ✘ Why others wrong: A: Opposite. C & D: Incorrect.
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