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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 1831
Quantitative easing (QE) is used when:
Select an option first.
Correct answer: A — Interest rates are already at or near zero
Explanation: ✔ Why correct: QE is an unconventional tool used when conventional rate cuts are no longer possible. ✘ Why others wrong: B: QE is not used to fight high inflation. C & D: Not related to QE.
Question 1832
A risk of QE is that:
Select an option first.
Correct answer: B — Central banks may accumulate risky assets that could lose value
Explanation: ✔ Why correct: Buying risky assets exposes the central bank to potential losses, threatening confidence in fiat money. ✘ Why others wrong: A: QE does not automatically cause hyperinflation. C: QE does not eliminate the multiplier. D: Banks may still choose not to lend.
Question 1833
A policy mix that encourages private investment typically involves:
Select an option first.
Correct answer: B — Accommodative monetary policy and tight fiscal policy
Explanation: ✔ Why correct: Low interest rates support investment, while tight fiscal policy frees resources for the private sector. ✘ Why others wrong: A: High rates discourage investment. C: Risks inflation. D: Restrictive for growth.
Question 1834
Governments may increase spending on training and infrastructure when:
Select an option first.
Correct answer: B — Workforce skills or capital infrastructure are inadequate
Explanation: ✔ Why correct: Improving human and physical capital boosts potential output. ✘ Why others wrong: A, C, D: Not the primary motivation.
Question 1835
If government increases spending without raising taxes, fiscal policy becomes:
Select an option first.
Correct answer: C — Expansionary
Explanation: ✔ Why correct: Higher spending without offsetting taxes increases aggregate demand. Wrong: A & B: Opposite. D: Fiscal stance always matters.
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Question 1836
Combining expansionary fiscal policy with loose monetary policy risks:
Select an option first.
Correct answer: B — Inflation
Explanation: ✔ Why correct: Both policies raise demand, increasing inflationary pressure. Wrong: A, C, D: Opposite effects.
Question 1837
The appropriate mix of monetary and fiscal policy is difficult to judge because:
Select an option first.
Correct answer: B — Policymakers lack precise knowledge of the economy’s current state
Explanation: ✔ Why correct: Economic data are lagged and revised, making real-time assessment difficult. Wrong: A, C, D: All false.
Question 1838
Fiscal policy is harder to use quickly because:
Select an option first.
Correct answer: B — Capital projects take time to plan and implement
Explanation: ✔ Why correct: Infrastructure and spending programs require long lead times. Wrong: A, C, D: Not accurate.
Question 1839
It is politically easier to:
Select an option first.
Correct answer: B — Loosen fiscal policy
Explanation: ✔ Why correct: Politicians prefer spending increases or tax cuts over austerity. Wrong: A, C, D: Politically unpopular.
Question 1840
Fiscal tightening often occurs through:
Select an option first.
Correct answer: B — Automatic stabilizers
Explanation: ✔ Why correct: Rising incomes automatically raise taxes; falling benefits reduce spending. Wrong: A: Expansionary. C & D: Not fiscal tools.
Question 1841
Monetary policy decisions are often easier politically because:
Select an option first.
Correct answer: A — Central banks are independent
Explanation: ✔ Why correct: Independence removes political pressure from rate decisions. Wrong: B, C, D: Incorrect.
Question 1842
Ricardian equivalence suggests tax cuts may fail to stimulate demand because:
Select an option first.
Correct answer: B — People save more in anticipation of future tax increases
Explanation: ✔ Why correct: Households expect future taxes to rise and save instead of spend. Wrong: A, C, D: Not Ricardian logic.
Question 1843
IMF research on coordinated fiscal loosening found that:
Select an option first.
Correct answer: B — Government spending increases have the largest GDP impact
Explanation: ✔ Why correct: Government spending had the strongest multiplier in the IMF model. Wrong: A, C, D: Not supported by findings.
Question 1844
Without monetary accommodation, social transfers have a smaller effect because:
Select an option first.
Correct answer: B — They are viewed as temporary
Explanation: ✔ Why correct: Temporary transfers lead households to save rather than spend. Wrong: A, C, D: Not accurate.
Question 1845
Targeted social transfers have a larger effect than general transfers because:
Select an option first.
Correct answer: B — The poor spend a higher share of income
Explanation: ✔ Why correct: Lower-income households have higher marginal propensities to consume. Wrong: A, C, D: Incorrect.
Question 1846
Labor tax cuts have:
Select an option first.
Correct answer: B — A slightly larger effect than general transfers
Explanation: ✔ Why correct: IMF findings show labor tax cuts outperform general transfers but not spending. Wrong: A, C, D: Not supported.
Question 1847
With monetary accommodation, fiscal multipliers:
Select an option first.
Correct answer: B — Become much larger
Explanation: ✔ Why correct: Low interest rates amplify fiscal stimulus. Wrong: A, C, D: Opposite.
Question 1848
With monetary accommodation, the multiplier for government spending rises from:
Select an option first.
Correct answer: B — 1.6 to 3.9
Explanation: ✔ Why correct: IMF results show a jump from 1.6 (no accommodation) to 3.9 (accommodation). Wrong: A, C, D: Not in the text.
Question 1849
Targeted social transfers have multipliers that rise from:
Select an option first.
Correct answer: B — 0.5 to 1.7
Explanation: ✔ Why correct: IMF findings show 0.5 (no accommodation) to 1.7 (accommodation). Wrong: A, C, D: Incorrect.
Question 1850
Fiscal multipliers rise with monetary accommodation because:
Select an option first.
Correct answer: A — Real interest rates fall
Explanation: ✔ Why correct: Higher demand and inflation reduce real rates, boosting private spending. Wrong: B, C, D: Not mechanisms.
Question 1851
Labor tax cuts are less positive under monetary accommodation because:
Select an option first.
Correct answer: B — They have weaker effects on demand
Explanation: ✔ Why correct: Labor tax cuts do not stimulate demand as strongly as spending or transfers. Wrong: A, C, D: Not supported.
Question 1852
A weak government may adopt expansionary fiscal policy because:
Select an option first.
Correct answer: B — It must satisfy competing vested interests
Explanation: ✔ Why correct: Political pressures (e.g., subsidies) push spending upward. Wrong: A, C, D: Opposite.
Question 1853
When weak governments overspend, monetary policy may need to:
Select an option first.
Correct answer: B — Become restrictive
Explanation: ✔ Why correct: Tight money offsets inflationary fiscal expansion. Wrong: A, C, D: Not appropriate.
Question 1854
Both monetary and fiscal policy suffer from:
Select an option first.
Correct answer: B — Data lags and revisions
Explanation: ✔ Why correct: Economic data arrive late and are revised. Wrong: A, C, D: Not true.
Question 1855
Fiscal policy suffers more than monetary policy because:
Select an option first.
Correct answer: B — It is slower to implement and politically harder to tighten
Explanation: ✔ Why correct: Capital projects take time; tightening is politically unpopular. Wrong: A, C, D: Incorrect.
Question 1856
Policymakers may favor monetary tools when:
Select an option first.
Correct answer: A — Ricardian equivalence reduces the impact of tax cuts
Explanation: ✔ Why correct: If tax cuts don’t boost demand, monetary tools become more attractive. Wrong: B, C, D: Not the reason.
Question 1857
IMF research shows fiscal policy is most powerful when:
Select an option first.
Correct answer: B — Monetary policy is accommodative
Explanation: ✔ Why correct: Low interest rates amplify fiscal multipliers. Wrong: A, C, D: Not supported.
Question 1858
Geopolitics is best defined as the study of:
Select an option first.
Correct answer: B — How geography affects politics and international relations
Explanation: ✔ Why correct: Geopolitics focuses on the influence of geography on political and international dynamics. ✘ Why others wrong: A, C, D: Not definitions of geopolitics.
Question 1859
In geopolitics, “actors” refers to:
Select an option first.
Correct answer: B — Individuals, organizations, companies, and governments
Explanation: ✔ Why correct: Actors include all entities influencing political, economic, and financial activities. ✘ Why others wrong: A, C, D: Too narrow.
Question 1860
State actors are defined as:
Select an option first.
Correct answer: B — Entities controlling national security and resources
Explanation: ✔ Why correct: State actors include governments and political bodies with authority over national resources. Wrong: A, C, D: These are non-state actors.
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