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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 1141
Sovereign wealth funds differ from central banks because:
Select an option first.
Correct answer: A — They pursue investment returns
Explanation: ✘ Why others wrong: B: Only central banks set policy. C: SWFs hold large foreign assets. D: SWFs actively trade FX.
Question 1142
Tier-one FX banks dominate because:
Select an option first.
Correct answer: B — They have global client bases and advanced trading systems
Explanation: ✘ Why others wrong: A: They invest heavily. C: They trade many currencies. D: Quoting prices is essential.
Question 1143
Spot FX transactions settle:
Select an option first.
Correct answer: A — Immediately or within two business days
Explanation: ✘ Why others wrong: B: Describes forwards. C & D: Not true.
Question 1144
Forward FX contracts are used to:
Select an option first.
Correct answer: B — Lock in a future exchange rate
Explanation: ✘ Why others wrong: A: Spot settles immediately. C: Forwards hedge but do not eliminate all risk. D: Forwards complement, not replace, spot.
Question 1145
FX swaps combine:
Select an option first.
Correct answer: B — A spot and a forward trade
Explanation: ✘ Why others wrong: A & C: Only one leg is spot. D: Swaps do exchange currencies.
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Question 1146
The BIS Triennial Survey measures:
Select an option first.
Correct answer: B — Global FX market turnover
Explanation: ✘ Why others wrong: A, C, D: Not BIS survey topics.
Question 1147
Spot transactions represent:
Select an option first.
Correct answer: B — Only a portion of FX turnover
Explanation: Spot transactions are a substantial but minority share of global FX turnover; FX swaps make up the largest single share, with outright forwards and options accounting for the rest. Spot trading is dominated by institutional flow, not retail.
Question 1148
A country that imports more than it exports must:
Select an option first.
Correct answer: B — Borrow from abroad or sell assets
Explanation: ✘ Why others wrong: A, C, D: Not required by identity.
Question 1149
A country with a trade surplus must:
Select an option first.
Correct answer: B — Lend abroad or buy foreign assets
Explanation: ✘ Why others wrong: A: Borrowing occurs with deficits. C: Surplus implies high savings. D: Surplus means exports > imports.
Question 1150
Capital inflows allow countries to:
Select an option first.
Correct answer: A — Invest more than domestic savings alone would allow
Explanation: ✘ Why others wrong: B: Opposite. C: Capital inflows increase foreign ownership. D: FX markets remain essential.
Question 1151
Foreign investment can benefit local firms by:
Select an option first.
Correct answer: B — Creating supplier networks and spillovers
Explanation: ✘ Why others wrong: A: FDI increases technology transfer. C: Competition may increase but not eliminate all firms. D: Productivity usually rises.
Question 1152
Capital controls may restrict:
Select an option first.
Correct answer: C — Tourists from traveling
Explanation: ✘ Why others wrong: B: Trade controls, not capital controls. C & D: Not related.
Question 1153
A country with FX-scarce conditions may:
Select an option first.
Correct answer: B — Restrict citizens from investing abroad
Explanation: ✘ Why others wrong: A: Opposite. C & D: Would worsen FX scarcity.
Question 1154
Foreign firms investing locally may bring:
Select an option first.
Correct answer: B — New technology and management practices
Explanation: ✘ Why others wrong: A: Opposite. C: Productivity usually increases. D: Competition often increases.
Question 1155
A country with a fiscal surplus (T > G) contributes to:
Select an option first.
Correct answer: B — A trade surplus
Explanation: ✘ Why others wrong: A: Deficits occur when savings < investment. C: Surplus does not imply higher imports. D: Surplus increases savings.
Question 1156
A country with S < I (savings less than investment) must:
Select an option first.
Correct answer: B — Run a trade deficit
Explanation: ✘ Why others wrong: A: Surplus requires S > I. C: Borrowing is required. D: Exports alone cannot fix S < I.
Question 1157
Capital inflows can raise growth because they:
Select an option first.
Correct answer: B — Provide funds for productive capacity
Explanation: ✘ Why others wrong: A: Opposite. C: Competition may rise but not eliminate all firms. D: FDI increases technology transfer.
Question 1158
In a perfectly competitive market, the demand curve facing an individual firm is:
Select an option first.
Correct answer: B — Perfectly elastic at the market price.
Explanation: ✔ Why correct: In perfect competition, the firm is a price taker and can sell any quantity at the given market price, so it faces a perfectly elastic (horizontal) demand curve. A: Describes imperfect competition, not perfect competition. C: Perfectly inelastic means quantity demanded doesn’t change with price—incorrect here. D: Demand curves are not upward sloping in standard micro theory.
Question 1159
For a perfectly competitive firm, marginal revenue (MR) is:
Select an option first.
Correct answer: C — Equal to price at all output levels.
Explanation: ✔ Why correct: With a horizontal demand curve, each additional unit is sold at the same market price, so MR = P. A: True for a firm with a downward-sloping demand curve, not perfect competition. B: MR is not greater than price in standard models. D: MR is a revenue concept; AVC is a cost concept.
Question 1160
A firm facing a negatively sloped demand curve must:
Select an option first.
Correct answer: B — Lower price to sell additional units.
Explanation: ✔ Why correct: With a downward-sloping demand curve, selling more requires reducing price. A: Opposite of demand behavior. C: That’s the case in perfect competition, not here. D: Describes a price taker, not a firm with market power.
Question 1161
For a monopolist with a downward-sloping demand curve, marginal revenue (MR):
Select an option first.
Correct answer: C — Is less than price at all positive output levels.
Explanation: ✔ Why correct: To sell more, the monopolist must cut price on all units, so MR falls faster than price and is below P. A: True only in perfect competition. B: Cannot be greater than price in this setting. D: MR is derived directly from the demand (price) function.
Question 1162
Under perfect competition, total revenue (TR) is given by:
Select an option first.
Correct answer: B — TR = P × Q, with P fixed by the market.
Explanation: ✔ Why correct: In perfect competition, price is exogenous to the firm, so TR = constant P × Q. A: That’s the imperfect competition case where P = f(Q). C: TR is not defined as MR × ATC. D: AVC is a cost measure, not revenue.
Question 1163
In imperfect competition, the firm’s total revenue (TR) can be expressed as:
Select an option first.
Correct answer: B — TR = f(Q) × Q, where P = f(Q).
Explanation: ✔ Why correct: With market power, price is a function of quantity, so TR = P(Q) × Q = f(Q) × Q. A: That’s perfect competition. C: ATC × Q is total cost, not revenue. D: TFC + TVC is total cost, not TR.
Question 1164
Initially, when a monopolist reduces price and sells more units, total revenue:
Select an option first.
Correct answer: C — Initially rises because the quantity effect dominates.
Explanation: ✔ Why correct: At first, the gain from selling more units outweighs the loss from a lower price, so TR increases. A: TR doesn’t always fall; it can rise or fall depending on elasticity. B: Not generally true. D: TR is directly affected by price and quantity.
Question 1165
As a monopolist continues to reduce price further along a linear demand curve, total revenue eventually:
Select an option first.
Correct answer: B — Falls because the price effect dominates the quantity effect.
Explanation: ✔ Why correct: Beyond a certain point, the loss from lower price on all units outweighs the gain from extra units sold, so TR falls. A: TR does not rise indefinitely on a linear demand curve. C: TR changes with P and Q. D: No reason TR must equal TC at that point.
Question 1166
A perfectly competitive firm maximizes profit in the short run by producing the quantity where:
Select an option first.
Correct answer: C — P = MC and MC is rising.
Explanation: ✔ Why correct: Profit maximization occurs where P = MR = MC and MC is rising (not falling). A: P = ATC is breakeven, not necessarily profit-maximizing. B: P = AVC is the shutdown threshold, not the profit-maximizing condition. D: MR = ATC is not the standard condition for profit maximization.
Question 1167
At output level Q′, where P = MC but MC is still falling, the firm:
Select an option first.
Correct answer: C — Is not maximizing profit because MC must be rising at the optimum.
Explanation: ✔ Why correct: The second-order condition for profit maximization requires MC to be rising at the optimal quantity. A: Violates the rising-MC condition. B: Not necessarily a loss-minimizing point. D: Shutdown depends on P vs AVC, not on MC’s slope alone.
Question 1168
In the short run, a perfectly competitive firm can earn positive economic profit if:
Select an option first.
Correct answer: A — P > ATC at the profit-maximizing output.
Explanation: ✔ Why correct: Economic profit is positive when price exceeds ATC at the chosen quantity. B: That implies zero economic profit (normal profit). C: The firm would shut down if P < AVC. D: P < ATC implies economic loss, not profit.
Question 1169
In the long run under perfect competition, positive economic profits:
Select an option first.
Correct answer: B — Attract entry, which drives price down to ATC.
Explanation: ✔ Why correct: Free entry drives supply up, pushing price down until firms earn only normal profit (P = ATC). A: Firms are price takers; profits don’t persist with free entry. C: Profits attract entry, not exit. D: Entry/exit is driven by profit signals.
Question 1170
A firm is said to break even when:
Select an option first.
Correct answer: A — TR = TC.
Explanation: ✔ Why correct: Breakeven occurs when total revenue equals total cost (including opportunity costs). B: TR < TVC implies shutdown in the short run. C: P < AVC also implies shutdown. D: TR > TC implies positive economic profit.
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