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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 181
The forward rate is primarily determined by:
Select an option first.
Correct answer: B — Interest rate differentials
Explanation: B is correct: Forward = spot adjusted for interest rate differences. A, C, D may influence long‑term trends but not forward pricing mechanics.
Question 182
The forward rate is most sensitive to changes in:
Select an option first.
Correct answer: B — Interest rate differentials
Explanation: B is correct: Forward = spot × (1 + domestic rate) / (1 + foreign rate). A, C, D influence long‑term fundamentals, not mechanical forward pricing.
Question 183
A country with a strong capital account surplus is likely experiencing:
Select an option first.
Correct answer: A — Net inflows of foreign investment
Explanation: A is correct: Capital account surplus = foreign money flowing in. B is opposite. C/D are not implied.
Question 184
A country’s currency is most likely to appreciate when:
Select an option first.
Correct answer: B — Foreign investors increase purchases of domestic assets
Explanation: B is correct: Capital inflows → demand for domestic currency. A weakens currency. C weakens currency. D weakens currency.
Question 185
A country with a fixed exchange rate must intervene when:
Select an option first.
Correct answer: A — Market forces push the currency away from the peg
Explanation: A is correct: Pegs require intervention to maintain the target. B, C, D do not require intervention.
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Question 186
A central bank defending a currency peg against depreciation pressure will most likely:
Select an option first.
Correct answer: A — Buy its own currency using reserves
Explanation: A is correct: Buying domestic currency reduces supply → supports the peg. B weakens the currency. C weakens the currency. D is fiscal policy, not FX defense.
Question 187
A fixed exchange rate becomes unsustainable when:
Select an option first.
Correct answer: A — Foreign reserves are depleted
Explanation: A is correct: Without reserves, the central bank cannot defend the peg. B, C, D support currency stability.
Question 188
Fiscal tightening (reduced government spending) may weaken a currency in the long run because:
Select an option first.
Correct answer: A — It lowers interest rates
Explanation: A is correct: Lower deficits → lower interest rates → less capital inflow → weaker currency. B is opposite. C is not automatic. D is unrelated.
Question 189
A country issuing large amounts of government debt may see its currency weaken because:
Select an option first.
Correct answer: A — Investors demand higher risk premiums
Explanation: A is correct: More debt → higher perceived risk → weaker currency. B/C/D are unrelated.
Question 190
A central bank sells its own currency to weaken it. This action will:
Select an option first.
Correct answer: A — Increase foreign reserves
Explanation: A is correct: Selling domestic currency → buying foreign currency → reserves rise. B is opposite. C contradicts intervention mechanics. D is unrelated.
Question 191
FX intervention is least effective when:
Select an option first.
Correct answer: D — All of the above
Explanation: D is correct: All listed conditions weaken intervention effectiveness. A/B/C individually contribute but D captures the full picture.
Question 192
A central bank wants to strengthen its currency. Which action is most appropriate?
Select an option first.
Correct answer: A — Buy domestic currency using reserves
Explanation: A is correct: Buying domestic currency reduces supply → appreciation. B/C/D weaken the currency.
Question 193
FX intervention becomes more powerful when:
Select an option first.
Correct answer: A — The central bank has large reserves
Explanation: A is correct: More reserves → more ability to influence FX markets. B/C reduce effectiveness. D undermines credibility.
Question 194
A country with large short‑term foreign debt is vulnerable because:
Select an option first.
Correct answer: A — It must roll over debt frequently
Explanation: A is correct: Short‑term debt → refinancing risk → crisis trigger. B/C/D reduce vulnerability.
Question 195
A government defending a currency peg during a crisis will most likely:
Select an option first.
Correct answer: A — Raise interest rates sharply
Explanation: A is correct: Higher rates attract capital → support the peg. B/C weaken the currency. D supports the peg but is not as immediate as rate hikes.
Question 196
A widening current account deficit may signal:
Select an option first.
Correct answer: B — Rising vulnerability to depreciation
Explanation: B is correct: Large deficits → reliance on foreign financing → depreciation risk. A/C/D contradict fundamentals.
Question 197
ICT capital includes:
Select an option first.
Correct answer: A — Computer hardware and software
Explanation: A is correct: ICT = information, communication, technology capital. B/C/D are non‑ICT or natural resources.
Question 198
Growth accounting decomposes GDP growth into contributions from:
Select an option first.
Correct answer: A — Labor, capital, and TFP
Explanation: A is correct: Standard growth accounting formula. B/C/D are not components of production.
Question 199
A country with strong export growth is likely to experience:
Select an option first.
Correct answer: A — Higher GDP growth
Explanation: A is correct: Exports increase demand and production. B/C/D contradict trade dynamics.
Question 200
A country with deep financial markets is likely to experience:
Select an option first.
Correct answer: A — Higher investment and faster growth
Explanation: A is correct: Deep markets → efficient capital allocation → growth. B/C/D contradict financial development theory.
Question 201
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 202
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 203
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 204
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 205
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 206
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 207
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 208
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 209
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 210
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.
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