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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 1951
In multifactor models, geopolitical risk can be incorporated as:
Select an option first.
Correct answer: A — A factor affecting confidence intervals and valuations
Explanation: ✔ Why correct: Analysts adjust factor weights and confidence based on geopolitical exposure. ✘ Why others wrong: B, C, D: Not accurate.
Question 1952
A company with diversified global production may have:
Select an option first.
Correct answer: B — Lower impact because production can shift
Explanation: ✔ Why correct: Multiple production sites reduce vulnerability to localized shocks. Wrong: A, C, D: Incorrect.
Question 1953
For long-horizon investors, geopolitical shocks may be:
Select an option first.
Correct answer: A — Buying opportunities
Explanation: ✔ Why correct: Long horizons allow recovery and opportunistic entry. Wrong: B, C, D: Not accurate.
Question 1954
For investors nearing retirement, geopolitical shocks:
Select an option first.
Correct answer: B — Can significantly harm terminal wealth
Explanation: ✔ Why correct: They have limited time to recover from losses. Wrong: A, C, D: Not true.
Question 1955
Interconnected global systems increase geopolitical risk because:
Select an option first.
Correct answer: B — Shocks in one country can spread to others
Explanation: ✔ Why correct: Interdependence amplifies spillover effects. Wrong: A, C, D: Incorrect.
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Question 1956
Ignoring geopolitical risk can lead to:
Select an option first.
Correct answer: B — Significant portfolio vulnerability
Explanation: ✔ Why correct: Geopolitical shocks can materially damage portfolios. Wrong: A, C, D: False.
Question 1957
High-velocity geopolitical risks most commonly affect:
Select an option first.
Correct answer: B — Asset prices immediately
Explanation: ✔ Why correct: Sudden shocks trigger rapid market reactions. Wrong: A, C, D: Too narrow.
Question 1958
Scenario analysis is valuable because it:
Select an option first.
Correct answer: B — Helps investors prepare for multiple possible futures
Explanation: ✔ Why correct: Scenarios help investors understand and plan for different risk paths. Wrong: A, C, D: Not accurate.
Question 1959
Signposts help investors by:
Select an option first.
Correct answer: B — Indicating when a risk is rising or falling in likelihood
Explanation: ✔ Why correct: Signposts track changes in risk conditions and guide action. Wrong: A, C, D: Incorrect.
Question 1960
A key benefit of international trade is:
Select an option first.
Correct answer: C — More efficient resource allocation
Explanation: ✔ Why correct: Trade shifts production toward goods produced more efficiently. ✘ Why others wrong: A, B, D: Opposite of trade benefits.
Question 1961
Gains from exchange occur when:
Select an option first.
Correct answer: B — Countries buy imports at lower cost than producing domestically
Explanation: ✔ Why correct: Importing cheaper goods increases welfare. Wrong: A, C, D: Not gains from exchange.
Question 1962
Trade increases overall welfare because:
Select an option first.
Correct answer: B — Winners could theoretically compensate losers
Explanation: ✔ Why correct: Total welfare rises even if distribution is uneven. Wrong: A, C, D: Too narrow or incorrect.
Question 1963
Comparative advantage arises from:
Select an option first.
Correct answer: B — Differences in technology or factor endowments
Explanation: ✔ Why correct: Ricardian and Heckscher–Ohlin models rely on such differences. Wrong: A, C, D: Not sources of comparative advantage.
Question 1964
Increased competition from trade tends to:
Select an option first.
Correct answer: C — Force domestic firms to become more efficient
Explanation: ✔ Why correct: Foreign competition pressures firms to improve. Wrong: A, B, D: Opposite.
Question 1965
Industries with increasing returns to scale benefit from trade because:
Select an option first.
Correct answer: B — Average costs fall as output rises
Explanation: ✔ Why correct: Larger markets allow firms to expand output and lower costs. Wrong: A, C, D: Incorrect.
Question 1966
Intra-industry trade occurs when:
Select an option first.
Correct answer: B — Countries export and import goods in the same category
Explanation: ✔ Why correct: It involves two-way trade within the same industry. Wrong: A, C, D: Not intra-industry trade.
Question 1967
A monopolistically competitive industry features:
Select an option first.
Correct answer: B — Many firms producing differentiated products
Explanation: ✔ Why correct: Many firms, differentiated goods, free entry. Wrong: A, C, D: Not characteristics.
Question 1968
In monopolistic competition, long-run economic profits are:
Select an option first.
Correct answer: B — Zero
Explanation: ✔ Why correct: Free entry drives profits to zero. Wrong: A, C, D: Incorrect.
Question 1969
Trade liberalization may increase real GDP through:
Select an option first.
Correct answer: C — Efficient resource allocation and knowledge spillovers
Explanation: ✔ Why correct: Trade fosters productivity, learning, and innovation. Wrong: A, B, D: Opposite.
Question 1970
Learning by doing means:
Select an option first.
Correct answer: B — Costs fall as output increases due to experience
Explanation: ✔ Why correct: Experience reduces unit costs. Wrong: A, C, D: Not accurate.
Question 1971
Foreign R&D benefits domestic productivity because:
Select an option first.
Correct answer: A — Knowledge spillovers occur through trade
Explanation: ✔ Why correct: Openness increases access to foreign ideas. Wrong: B, C, D: Opposite.
Question 1972
Logitech moved production to Taiwan primarily to:
Select an option first.
Correct answer: B — Access skilled labor and suppliers
Explanation: ✔ Why correct: Taiwan offered skilled labor, suppliers, and competitive facilities. Wrong: A, C, D: Not true.
Question 1973
A major criticism of free trade is:
Select an option first.
Correct answer: C — It may cause job losses in import-competing industries
Explanation: ✔ Why correct: Import competition can displace workers. Wrong: A, B, D: Not typical criticisms.
Question 1974
Trade adjustment costs include:
Select an option first.
Correct answer: B — Need for retraining displaced workers
Explanation: ✔ Why correct: Workers may need retraining when industries contract. Wrong: A, C, D: Incorrect.
Question 1975
Trade restrictions are policies that:
Select an option first.
Correct answer: B — Limit ability to trade freely
Explanation: ✔ Why correct: Restrictions limit imports or exports. Wrong: A, C, D: Opposite.
Question 1976
A tariff is:
Select an option first.
Correct answer: B — A tax on imported goods
Explanation: ✔ Why correct: Tariffs raise import prices. Wrong: A, C, D: Not tariffs.
Question 1977
An import quota:
Select an option first.
Correct answer: B — Limits quantity of imports
Explanation: ✔ Why correct: Quotas restrict import volume. Wrong: A, C, D: Incorrect.
Question 1978
A voluntary export restraint (VER) is:
Select an option first.
Correct answer: B — A quota imposed by the exporter
Explanation: ✔ Why correct: VERs are export limits set by the exporting country. Wrong: A, C, D: Not VERs.
Question 1979
Export subsidies:
Select an option first.
Correct answer: B — Distort trade away from comparative advantage
Explanation: ✔ Why correct: Subsidies encourage inefficient production. Wrong: A, C, D: Not accurate.
Question 1980
Domestic content requirements mandate:
Select an option first.
Correct answer: B — A percentage of value added be domestic
Explanation: ✔ Why correct: They require domestic components or value added. Wrong: A, C, D: Incorrect.
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