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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 631
A second argument against worrying about debt is that borrowed money may:
Select an option first.
Correct answer: B — Be used for productive investment
Explanation: ✔ Why correct: Investment in capital or education raises future output. ✘ Why others wrong: A, C, D: Not the argument.
Question 632
A third argument against worrying about debt is that:
Select an option first.
Correct answer: B — Tax changes may reduce distortions
Explanation: ✔ Why correct: Fiscal adjustments may improve tax efficiency. ✘ Why others wrong: A, C, D: Incorrect.
Question 633
Ricardian equivalence suggests that deficits:
Select an option first.
Correct answer: B — Have no net impact because private saving rises
Explanation: ✔ Why correct: Households save more anticipating future taxes. ✘ Why others wrong: A, C, D: Opposite or incorrect.
Question 634
Another argument against worrying about debt is that if unemployment exists:
Select an option first.
Correct answer: B — Debt does not divert activity from productive uses
Explanation: ✔ Why correct: Idle resources mean borrowing does not crowd out activity. ✘ Why others wrong: A: Opposite. C & D: Not true.
Question 635
Fiscal policy can influence:
Select an option first.
Correct answer: C — Aggregate demand, distribution, and resource allocation
Explanation: ✔ Why correct: Fiscal policy affects demand, equity, and sectoral allocation. ✘ Why others wrong: A, B, D: Too narrow.
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Question 636
Expansionary fiscal policy increases aggregate demand by:
Select an option first.
Correct answer: C — Increasing spending or cutting taxes
Explanation: ✔ Why correct: Both actions boost demand. ✘ Why others wrong: A & B: Contractionary. D: Not fiscal.
Question 637
Contractionary fiscal policy reduces aggregate demand by:
Select an option first.
Correct answer: C — Raising taxes or cutting spending
Explanation: ✔ Why correct: Both actions reduce demand. ✘ Why others wrong: A & B: Expansionary. D: Not fiscal.
Question 638
Fiscal policy is especially powerful when:
Select an option first.
Correct answer: B — There is substantial spare capacity
Explanation: ✔ Why correct: With idle resources, fiscal stimulus raises output significantly. ✘ Why others wrong: A: Less effective. C & D: Not the main condition.
Question 639
Monetarists argue fiscal policy effects are temporary because:
Select an option first.
Correct answer: B — Monetary policy dominates long-run outcomes
Explanation: ✔ Why correct: Monetarists emphasize money supply as the key driver. ✘ Why others wrong: A, C, D: Incorrect.
Question 640
A budget deficit automatically rises in recession because:
Select an option first.
Correct answer: B — Government spending on benefits rises
Explanation: ✔ Why correct: Unemployment benefits and social spending increase. ✘ Why others wrong: A: Revenues fall. C: Spending rises. D: Not the main driver.
Question 641
A budget surplus automatically rises in a boom because:
Select an option first.
Correct answer: A — Tax revenues rise with income
Explanation: ✔ Why correct: Higher incomes increase tax receipts. ✘ Why others wrong: B: Spending may not rise. C & D: Not relevant.
Question 642
Automatic stabilizers are beneficial because:
Select an option first.
Correct answer: A — They require no policy decisions
Explanation: ✔ Why correct: They operate without delays or political action. ✘ Why others wrong: B & C: They reduce, not eliminate cycles. D: Opposite.
Question 643
Discretionary fiscal policy is limited by:
Select an option first.
Correct answer: B — Political delays and timing issues
Explanation: ✔ Why correct: Policy changes take time to legislate and implement. ✘ Why others wrong: A: Opposite. C: Automatic stabilizers. D: Not true.
Question 644
National debt concerns depend partly on:
Select an option first.
Correct answer: A — Who owns the debt
Explanation: ✔ Why correct: Internal vs external ownership affects sustainability. ✘ Why others wrong: B, C, D: Not the main factor.
Question 645
A key argument for being concerned about high national debt is that it may:
Select an option first.
Correct answer: B — Require higher tax rates that reduce economic activity
Explanation: ✔ Why correct: High debt may force governments to raise taxes, discouraging work and investment. ✘ Why others wrong: A & C: Higher taxes reduce these. D: Debt concerns often raise inflation risk.
Question 646
Higher marginal tax rates due to high debt may:
Select an option first.
Correct answer: B — Reduce labor effort and entrepreneurship
Explanation: ✔ Why correct: Higher taxes reduce incentives to work and invest. ✘ Why others wrong: A & D: Opposite. C: Taxes do affect behavior.
Question 647
If markets lose confidence in a government, the central bank may:
Select an option first.
Correct answer: B — Print money to finance deficits
Explanation: ✔ Why correct: Loss of confidence can force monetary financing, risking inflation. ✘ Why others wrong: A, C, D: Not the mechanism.
Question 648
Printing money to finance deficits may lead to:
Select an option first.
Correct answer: B — High inflation or hyperinflation
Explanation: ✔ Why correct: Historical examples (Germany 1920s, Zimbabwe) show this. ✘ Why others wrong: A, C, D: Opposite or unrelated.
Question 649
Government borrowing may crowd out private investment because:
Select an option first.
Correct answer: B — It raises interest rates by competing for savings
Explanation: ✔ Why correct: More government borrowing raises interest rates, reducing private investment. ✘ Why others wrong: A: Opposite. C & D: Not the mechanism.
Question 650
Transfer payments include:
Select an option first.
Correct answer: B — Welfare, pensions, unemployment benefits
Explanation: ✔ Why correct: Transfer payments support household income but do not buy goods/services. ✘ Why others wrong: A, C, D: These are government expenditures, not transfers.
Question 651
Transfer payments are excluded from GDP because:
Select an option first.
Correct answer: B — They do not reflect payment for production
Explanation: ✔ Why correct: GDP counts payments for goods/services, not income redistribution. ✘ Why others wrong: A, C, D: Incorrect.
Question 652
Current government spending includes:
Select an option first.
Correct answer: B — Regular spending on health, education, defense
Explanation: ✔ Why correct: Current spending covers recurring services. ✘ Why others wrong: A: Capital spending. C & D: Too narrow.
Question 653
Capital expenditure includes:
Select an option first.
Correct answer: B — Roads, hospitals, schools
Explanation: ✔ Why correct: Capital spending builds long-term infrastructure. ✘ Why others wrong: A, C, D: Not capital investment.
Question 654
Capital expenditure affects:
Select an option first.
Correct answer: B — Long-term productive potential
Explanation: ✔ Why correct: Infrastructure increases future productive capacity. ✘ Why others wrong: A, C, D: Not the main effect.
Question 655
Government spending is justified economically to:
Select an option first.
Correct answer: A — Provide public goods like defense
Explanation: ✔ Why correct: Defense and similar public goods benefit all citizens. ✘ Why others wrong: B, C, D: Not valid justifications.
Question 656
Government spending is justified socially to:
Select an option first.
Correct answer: B — Guarantee minimum income for poorer households
Explanation: ✔ Why correct: Welfare programs redistribute income. ✘ Why others wrong: A, C, D: Not goals.
Question 657
Government spending can influence economic objectives by:
Select an option first.
Correct answer: A — Managing aggregate demand
Explanation: ✔ Why correct: Fiscal policy affects demand, inflation, and employment. ✘ Why others wrong: B, C, D: Not fiscal roles.
Question 658
Direct taxes include:
Select an option first.
Correct answer: C — Income and corporate taxes
Explanation: ✔ Why correct: Direct taxes are levied on income, wealth, and profits. ✘ Why others wrong: A, B, D: These are indirect taxes.
Question 659
Indirect taxes include:
Select an option first.
Correct answer: C — Sales taxes and excise duties
Explanation: ✔ Why correct: Indirect taxes apply to spending on goods/services. ✘ Why others wrong: A, B, D: Direct taxes.
Question 660
Taxes can be justified because they:
Select an option first.
Correct answer: B — Raise revenue and redistribute income
Explanation: ✔ Why correct: Taxes fund spending and adjust income distribution. ✘ Why others wrong: A: Not the purpose. C & D: Incorrect.
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