CFA Level I subject

Economics practice questions

Economics questions focus on microeconomics, macroeconomic policy, international trade, currency markets, and market structure logic. This section currently includes 196 public practice questions across 21 topic modules, with explanations, formulas, traps, and key takeaways.

Indicative public exam weight: 6-9%. Start with a topic guide when you need focused review, or use adaptive mode for mixed practice and due reviews.

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Breakeven and Shutdown

1 public question with explanations, formulas, and exam traps.

Business Cycle Phases

1 public question with explanations, formulas, and exam traps.

Capital Flows and the FX Market

23 public questions with explanations, formulas, and exam traps.

Central Bank Credibility

1 public question with explanations, formulas, and exam traps.

Economic Indicators

1 public question with explanations, formulas, and exam traps.

Exchange Rate Calculations

24 public questions with explanations, formulas, and exam traps.

Fiscal Policy

22 public questions with explanations, formulas, and exam traps.

Forward Points and Premium

1 public question with explanations, formulas, and exam traps.

FX Cross-Rates

1 public question with explanations, formulas, and exam traps.

Geopolitics

1 public question with explanations, formulas, and exam traps.

Integrated Economics Scenarios

3 public questions with explanations, formulas, and exam traps.

International Trade

19 public questions with explanations, formulas, and exam traps.

Introduction to Geopolitics

20 public questions with explanations, formulas, and exam traps.

Market Structures

1 public question with explanations, formulas, and exam traps.

Monetary Policy

24 public questions with explanations, formulas, and exam traps.

Monetary Transmission

1 public question with explanations, formulas, and exam traps.

Oligopoly Strategy

1 public question with explanations, formulas, and exam traps.

The Firm and Market Structures

28 public questions with explanations, formulas, and exam traps.

Trade Blocs and Regimes

1 public question with explanations, formulas, and exam traps.

Trade Policy

1 public question with explanations, formulas, and exam traps.

Understanding Business Cycles

21 public questions with explanations, formulas, and exam traps.

Moderate

Economics

Breakeven and Shutdown

A firm sells output for 48 per unit. AVC is 42, ATC is 55, and MC at current output is 47. In the short run, the firm should most likely:

Moderate

Economics

Business Cycle Phases

New orders accelerate, inventories-to-sales fall, credit spreads narrow, unemployment declines from high levels, and inflation remains subdued. The economy is most likely in:

Easy

Economics

Capital Flows and the FX Market

Money that migrant workers send home to their families abroad is most likely recorded in the receiving country's balance of payments under the:

Easy

Economics

Capital Flows and the FX Market

Large global banks that continuously quote two-way (bid and offer) prices in major currency pairs to clients are best described as belonging to the FX market's:

Moderate

Economics

Capital Flows and the FX Market

A country runs a persistent current account deficit. Setting aside measurement errors, its combined capital and financial accounts most likely show:

Very Difficult

Economics

Capital Flows and the FX Market

Over one year, the nominal USD/EUR exchange rate (US dollars per euro) rises by 2.0%. During the same year, euro-area consumer prices rise by 3.0% and US consumer prices rise by 1.0%. Using real USD/EUR = nominal USD/EUR x (CPI_euro area / CPI_US), the change in the real USD/EUR exchange rate is closest to:

Easy

Economics

Capital Flows and the FX Market

For a US-based investor, the quote USD/EUR = 1.1000 is best interpreted as:

Moderate

Economics

Capital Flows and the FX Market

The exchange rate moves from USD/EUR = 1.2500 to USD/EUR = 1.2000. The most accurate interpretation is that:

Moderate

Economics

Capital Flows and the FX Market

The nominal exchange rate is USD/EUR = 1.2000. The euro area CPI is 110 and the US CPI is 120. Using the convention real USD/EUR = nominal USD/EUR x (CPI_euro area/CPI_US), the real exchange rate is closest to:

Easy

Economics

Capital Flows and the FX Market

A country legally commits to exchange domestic currency for a foreign anchor currency at a fixed rate and backs the monetary base with foreign reserves. The exchange rate regime is best described as a:

Easy

Economics

Capital Flows and the FX Market

A government imposes temporary limits on foreign purchases of domestic bonds and on domestic residents' ability to buy foreign securities. The most likely policy objective is to:

Easy

Economics

Capital Flows and the FX Market

A sharp depreciation of a country's currency is most likely to:

Easy

Economics

Capital Flows and the FX Market

A multinational with a known foreign-currency payable enters the FX forward market to lock in the domestic-currency cost of that payable. The participant's motive is best described as:

Easy

Economics

Capital Flows and the FX Market

In the quote USD/EUR = 1.2000, the base currency is the:

Easy

Economics

Capital Flows and the FX Market

If USD/EUR rises from 1.10 to 1.20, the euro has most likely:

Easy

Economics

Capital Flows and the FX Market

A fixed exchange-rate regime is best described as one in which the monetary authority:

Easy

Economics

Capital Flows and the FX Market

A common objective of capital restrictions is to:

Moderate

Economics

Capital Flows and the FX Market

The exchange rate USD/GBP moves from 1.2500 to 1.2000. The percentage change in the pound relative to the US dollar is closest to:

Moderate

Economics

Capital Flows and the FX Market

A country's currency depreciates sharply. For an exporter with most costs in domestic currency and revenues in foreign currency, the near-term effect is most likely:

Moderate

Economics

Capital Flows and the FX Market

A nominal exchange rate changes while the domestic and foreign price levels also change. The real exchange rate is used primarily to measure:

Moderate

Economics

Capital Flows and the FX Market

Under a freely floating exchange-rate regime, a persistent increase in foreign demand for domestic assets most likely causes the domestic currency to:

Moderate

Economics

Capital Flows and the FX Market

A managed float is best described as a regime in which the exchange rate:

Moderate

Economics

Capital Flows and the FX Market

A country's currency depreciates after monetary easing. Import volumes decline only slowly, and the trade balance initially worsens. The most appropriate interpretation is that:

Easy

Economics

Capital Flows and the FX Market

An investor observes that Country X has high domestic interest rates and a depreciating currency. The most appropriate Level I conclusion is that:

Easy

Economics

Capital Flows and the FX Market

A government chooses a hard peg to reduce exchange-rate volatility for trade. The most likely cost is reduced ability to:

Moderate

Economics

Central Bank Credibility

A credible inflation-targeting central bank faces inflation from a temporary imported energy shock. The most accurate assessment is:

Moderate

Economics

Economic Indicators

An analyst assigns indicators to cycle categories. The indicator most likely lagging is:

Moderate

Economics

Exchange Rate Calculations

The JPY/USD exchange rate (yen per US dollar) moves from 140.00 to 147.00 over six months. Relative to the yen, the US dollar has most likely:

Easy

Economics

Exchange Rate Calculations

Under covered interest rate parity, the currency of the country with the lower interest rate most likely trades in the forward market at a:

Moderate

Economics

Exchange Rate Calculations

A dealer provides the following quotes: USD/EUR 1.1000-1.1010 and USD/GBP 1.3000-1.3010 (US dollars per unit of foreign currency, bid-offer). The EUR/GBP bid (euros per pound) is closest to:

Very Difficult

Economics

Exchange Rate Calculations

Spot USD/EUR is 1.0500. Six-month interest rates, stated on an annualized basis, are 4.0% in the United States and 2.0% in the euro area. Assuming simple interest for the six-month period, the six-month forward USD/EUR rate implied by covered interest rate parity is closest to:

Moderate

Economics

Exchange Rate Calculations

Given USD/EUR = 1.0800 and USD/GBP = 1.3500, the EUR/GBP cross-rate is closest to:

Moderate

Economics

Exchange Rate Calculations

Given JPY/USD = 150.00 and CHF/USD = 0.9000, the JPY/CHF cross-rate is closest to:

Moderate

Economics

Exchange Rate Calculations

Spot USD/EUR is 1.0860. Three-month forward points are +18.5, quoted in 1/10,000 units. The three-month forward USD/EUR rate is closest to:

Very Difficult

Economics

Exchange Rate Calculations

Spot CAD/USD is 1.3500 and the six-month forward CAD/USD rate is 1.3770. The annualized forward premium or discount for the US dollar is closest to:

Very Difficult

Economics

Exchange Rate Calculations

Spot USD/EUR is 1.1000. One-year interest rates are 5.0% in the United States and 2.0% in the euro area. Under covered interest parity, the one-year forward USD/EUR rate is closest to:

Very Difficult

Economics

Exchange Rate Calculations

Spot CHF/EUR is 0.9700. One-year interest rates are 1.0% in Switzerland and 3.0% in the euro area. Under covered interest parity, the one-year forward CHF/EUR rate is closest to:

Very Difficult

Economics

Exchange Rate Calculations

Spot USD/EUR is 1.2000 and spot USD/GBP is 1.5000. A dealer quotes EUR/GBP = 1.2200. Ignoring transaction costs, the most appropriate arbitrage is to:

Very Difficult

Economics

Exchange Rate Calculations

Spot JPY/USD is 145.20. One-year forward points are -320, where one point equals 0.01 yen. The one-year forward rate and interpretation are closest to:

Easy

Economics

Exchange Rate Calculations

If USD/EUR = 1.2000, the reciprocal quote EUR/USD is closest to:

Easy

Economics

Exchange Rate Calculations

A forward rate quoted above the spot rate in USD/EUR terms most likely means the euro is trading at a forward:

Easy

Economics

Exchange Rate Calculations

Covered interest rate parity is best described as:

Easy

Economics

Exchange Rate Calculations

Forward points of +0.0015 applied to a spot quote of CAD/USD = 1.3500 produce a forward quote of:

Moderate

Economics

Exchange Rate Calculations

Given USD/EUR = 1.1000 and USD/GBP = 1.3200, the EUR/GBP cross-rate is closest to:

Moderate

Economics

Exchange Rate Calculations

Spot USD/EUR = 1.1000. One-year interest rates are 4% in USD and 2% in EUR. Under covered interest parity, the one-year forward USD/EUR is closest to:

Moderate

Economics

Exchange Rate Calculations

Spot JPY/USD = 150.00 and the six-month forward quote is 147.00. The US dollar's six-month forward premium or discount versus the yen is closest to:

Moderate

Economics

Exchange Rate Calculations

A one-year forward USD/CHF is quoted at 0.9100 while spot USD/CHF is 0.9000. The Swiss franc is most likely trading at a forward:

Moderate

Economics

Exchange Rate Calculations

Spot EUR/GBP = 0.8600 and one-year forward EUR/GBP = 0.8514. The one-year forward premium or discount on GBP is closest to:

Very Difficult

Economics

Exchange Rate Calculations

Spot CAD/USD = 1.3500. Six-month interest rates are 2.0% in CAD and 3.0% in USD, stated for the six-month period. Under covered interest parity, the six-month forward CAD/USD is closest to:

Difficult

Economics

Exchange Rate Calculations

A dealer observes USD/EUR = 1.0800, USD/GBP = 1.2960, and EUR/GBP = 1.1800. Ignoring transaction costs, the most appropriate action is to:

Very Difficult

Economics

Exchange Rate Calculations

An analyst calculates a one-year forward USD/EUR of 1.1250 from covered interest parity while the spot rate is 1.1000. The most accurate interpretation is that:

Easy

Economics

Fiscal Policy

Several months pass between the start of an economic downturn and the moment policymakers, relying on revised statistical releases, conclude that a downturn is underway. This delay is best described as the:

Easy

Economics

Fiscal Policy

Which of the following is most likely an example of discretionary fiscal policy rather than an automatic stabilizer?

Moderate

Economics

Fiscal Policy

In an economy with no imports, households have a marginal propensity to consume of 0.8 out of disposable income, and a proportional income tax of 25% applies. The fiscal multiplier for an increase in government purchases is closest to:

Very Difficult

Economics

Fiscal Policy

Analyst Tomas Novak reviews a country with government debt equal to 90% of GDP, an average nominal interest rate on debt of 4%, and nominal GDP growth of 2%, both expected to persist. To keep the debt-to-GDP ratio approximately stable, the government's primary balance must be closest to a:

Very Difficult

Economics

Fiscal Policy

A country's actual budget deficit falls from 5% to 3% of GDP during a boom. Over the same period, its cyclically adjusted deficit rises from 2% to 4% of GDP because of permanent tax cuts. The fiscal stance is most accurately described as:

Easy

Economics

Fiscal Policy

During a recession, income tax collections fall and unemployment benefit payments rise without new legislation. These changes are best described as:

Very Difficult

Economics

Fiscal Policy

A government wants countercyclical stimulus during a downturn. It can either mail a temporary tax rebate within one month or begin a multi-year infrastructure program after environmental reviews and procurement. The most accurate comparison is that the infrastructure program is likely to have:

Very Difficult

Economics

Fiscal Policy

A deficit-financed increase in government spending is enacted when the economy is already near full employment and the central bank is committed to an inflation target. The spending multiplier is most likely reduced by:

Easy

Economics

Fiscal Policy

Fiscal policy is best described as the use of:

Very Difficult

Economics

Fiscal Policy

A country has a debt-to-GDP ratio of 80%, a nominal interest rate on government debt of 3%, nominal GDP growth of 5%, and a primary deficit of 1% of GDP. The debt ratio is most likely to:

Easy

Economics

Fiscal Policy

A budget deficit is best described as the amount by which:

Very Difficult

Economics

Fiscal Policy

Which fiscal tool is most likely to increase aggregate demand quickly while also being relatively well targeted to households with high marginal propensities to consume?

Easy

Economics

Fiscal Policy

An automatic stabilizer is most likely represented by:

Very Difficult

Economics

Fiscal Policy

An analyst classifies a central bank's reduction in reserve requirements and a government's increase in unemployment benefits as the same type of policy because both increase aggregate demand. The classification is least accurate because:

Easy

Economics

Fiscal Policy

A decrease in government spending is most likely classified as:

Moderate

Economics

Fiscal Policy

A government lowers payroll taxes during a recession. The policy is most likely intended to:

Moderate

Economics

Fiscal Policy

Assume a simple spending multiplier of 4. If government purchases increase by 50 million and no crowding out occurs, the maximum increase in aggregate demand is closest to:

Moderate

Economics

Fiscal Policy

Crowding out is most likely to occur when expansionary fiscal policy:

Moderate

Economics

Fiscal Policy

A policy package raises income taxes and reduces transfer payments. The package is most likely:

Very Difficult

Economics

Fiscal Policy

A country's fiscal deficit rises during a recession even though no new spending bill or tax cut was enacted. The most accurate interpretation is that the larger deficit is:

Moderate

Economics

Fiscal Policy

A government implements debt-financed stimulus when the economy is near full capacity. The most likely limitation of this policy is:

Moderate

Economics

Fiscal Policy

A government increases infrastructure spending during recession, financed by borrowing. The main implementation limitation is most likely:

Moderate

Economics

Forward Points and Premium

Spot EUR/USD is 1.0940, and three-month forward points are +18.5 quoted in 1/10,000 USD per EUR. The forward rate and annualized EUR forward premium are closest to:

Moderate

Economics

FX Cross-Rates

Quotes are USD/EUR = 1.0800 and USD/GBP = 1.2600, each as USD per foreign currency unit. EUR/GBP, expressed as EUR per GBP, is closest to:

Moderate

Economics

Geopolitics

A country restricts exports of critical minerals after a diplomatic dispute. An analyst reviewing an automaker with no sales in that country still raises the firm's risk premium and lowers margin forecasts. The adjustment is best described as:

Very Difficult

Economics

Integrated Economics Scenarios

A monopolistically competitive firm enters a cyclical slowdown. Its demand curve shifts left and becomes more price elastic as consumers trade down to close substitutes. In the short run, the firm's most likely optimal response is to:

Very Difficult

Economics

Integrated Economics Scenarios

A government enacts deficit-financed spending while the central bank raises policy rates to defend its inflation target. Under a floating exchange rate, the most likely combined effect is:

Very Difficult

Economics

Integrated Economics Scenarios

A geopolitical dispute leads to sanctions on a country's banks, restrictions on foreign investment, and reduced access to hard currency. Its currency depreciates sharply and local equity risk premiums rise. The most accurate interpretation is that:

Easy

Economics

International Trade

Two countries open to trade with each other, and the international price of the traded good settles strictly between the two countries' autarky (no-trade) prices. The most likely outcome is that:

Easy

Economics

International Trade

A customs union most likely differs from a free trade area in that the customs union adds:

Moderate

Economics

International Trade

In Country X, one worker can produce either 8 machine tools or 4 bolts of textiles per period. In Country Y, one worker can produce either 3 machine tools or 3 bolts of textiles per period. Based on comparative advantage, the most likely pattern of trade is that:

Very Difficult

Economics

International Trade

A small country faces a fixed world price of 10 per unit for an imported good. Under free trade, domestic consumption is 100 units and domestic production is 40 units. A tariff of 2 per unit raises the domestic price to 12, reducing consumption to 90 units and raising domestic production to 60 units. The total deadweight loss from the tariff is closest to:

Moderate

Economics

International Trade

A small country imposes a tariff on an imported good. The world price is unchanged. The most likely domestic welfare effect is:

Very Difficult

Economics

International Trade

A quota and a tariff are calibrated to produce the same domestic price and import quantity. The key welfare difference is most likely that:

Very Difficult

Economics

International Trade

A government pays a per-unit subsidy to domestic producers for each unit exported. For the exporting country, the most likely effect is:

Very Difficult

Economics

International Trade

A regional agreement removes internal tariffs, adopts a common external tariff, allows labor and capital to move freely among members, and harmonizes some regulatory and fiscal policies. The agreement is best described as closest to a:

Easy

Economics

International Trade

A country opens to trade. Consumers gain from lower prices and greater variety, while workers and firms in import-competing industries suffer losses. The most accurate conclusion is that international trade:

Moderate

Economics

International Trade

A tariff is imposed on imported steel. Domestic steel producers gain, but domestic automobile manufacturers use steel as a major input. The most complete analysis is that the tariff:

Easy

Economics

International Trade

A group of countries forms a common market mainly to increase scale economies, deepen competition, and permit labor and capital to move to more productive uses. The most appropriate expected benefit is:

Easy

Economics

International Trade

Comparative advantage is best described as the ability to produce a good at a lower:

Easy

Economics

International Trade

A free trade area is best described as an arrangement in which members:

Easy

Economics

International Trade

A quota differs from a tariff because a quota directly:

Moderate

Economics

International Trade

Country A can produce either 10 units of wheat or 5 units of cloth per labor hour. Country B can produce either 6 units of wheat or 4 units of cloth per labor hour. Country B has a comparative advantage in:

Moderate

Economics

International Trade

A small country imposes a tariff on an imported consumer good. The most likely result is:

Moderate

Economics

International Trade

The progression from customs union to common market most likely adds:

Moderate

Economics

International Trade

A country restricts imports using a quota rather than an equivalent tariff. Compared with the tariff, the quota is least likely to:

Easy

Economics

International Trade

A domestic industry argues for protection because it employs many workers. A CFA Level I analyst's most appropriate response is that protection:

Easy

Economics

Introduction to Geopolitics

In the analysis of geopolitics, which of the following is best classified as a non-state actor?

Easy

Economics

Introduction to Geopolitics

Which of the following is best classified as an economic tool of geopolitics rather than a national security or financial tool?

Moderate

Economics

Introduction to Geopolitics

Analyst Kwame Mensah tracks state-sponsored cyberattacks on financial infrastructure that have been intensifying gradually across many countries over several years and are expected to remain a persistent concern. This risk is best classified as:

Very Difficult

Economics

Introduction to Geopolitics

Portfolio manager Sofia Almeida assesses a geopolitical risk as low likelihood but high velocity and high potential impact for her portfolio of liquid large-cap equities. Given the cost of risk mitigation, her most appropriate response is to:

Easy

Economics

Introduction to Geopolitics

A country requests emergency external financing because it cannot obtain foreign currency needed for imports and debt service. The international organization most directly associated with stability of the international monetary system is the:

Easy

Economics

Introduction to Geopolitics

A state sacrifices a profitable trade relationship to secure control over a strategic port considered essential to national defense. From a geopolitical perspective, this behavior is most consistent with:

Easy

Economics

Introduction to Geopolitics

A sudden military invasion disrupts shipping lanes and causes investors to reassess regional risk premiums. This is best classified as:

Easy

Economics

Introduction to Geopolitics

A government limits foreign investors' ability to repatriate dividends and restricts access to local currency markets. These measures are best described as:

Easy

Economics

Introduction to Geopolitics

A portfolio manager evaluates a geopolitical risk by estimating its likelihood, expected speed of impact, and size and nature of possible portfolio losses under several scenarios. This approach is most consistent with:

Easy

Economics

Introduction to Geopolitics

A policy package emphasizes domestic sourcing, limits foreign investment in strategic sectors, and raises barriers to cross-border data flows. Relative to globalization, the package is best described as:

Easy

Economics

Introduction to Geopolitics

Geopolitical risk is most accurately described as risk arising from:

Easy

Economics

Introduction to Geopolitics

The organization most closely associated with reducing barriers to trade through rules and dispute settlement is the:

Easy

Economics

Introduction to Geopolitics

Sanctions, tariffs, capital restrictions, and military conflict are best described as:

Easy

Economics

Introduction to Geopolitics

Globalization is most accurately associated with increased:

Moderate

Economics

Introduction to Geopolitics

A new sanction limits a country's access to international payment systems. The most likely investment effect is:

Moderate

Economics

Introduction to Geopolitics

A multilateral institution provides emergency financing to a country with a balance-of-payments crisis. The institution is most likely the:

Moderate

Economics

Introduction to Geopolitics

An investment analyst incorporating geopolitical risk into valuation would most appropriately adjust:

Moderate

Economics

Introduction to Geopolitics

A globalization trend led mostly by corporations, individuals, and organizations rather than national governments is best described as activity led by:

Easy

Economics

Introduction to Geopolitics

An analyst states that globalization always reduces geopolitical risk because economic ties make conflict irrational. The statement is least accurate because globalization:

Easy

Economics

Introduction to Geopolitics

A country imposes capital controls to limit sudden portfolio outflows after a geopolitical shock. The most likely immediate objective is to:

Moderate

Economics

Market Structures

An industry has an HHI of 2,850, four national firms, differentiated products, high fixed distribution costs, substantial entry barriers, and frequent price matching after one firm changes fares. The market is best described as:

Easy

Economics

Monetary Policy

Which of the following is least likely a tool of monetary policy?

Easy

Economics

Monetary Policy

An economy experiences persistent deflation. Conventional monetary policy is most likely limited in this environment because:

Moderate

Economics

Monetary Policy

Mei-Ling Chen, an analyst, estimates an economy's trend real GDP growth at 1.5% and notes the central bank's inflation target of 2.0%. The current policy rate is 2.5%. The monetary policy stance is most likely:

Very Difficult

Economics

Monetary Policy

A central bank unexpectedly raises its policy rate by 100 basis points to combat above-target inflation. Over the following weeks, 10-year government bond yields decline and the yield curve flattens. The most appropriate interpretation is that:

Easy

Economics

Monetary Policy

In an open market operation, a central bank purchases government securities from banks. Holding other factors constant, the initial effect is most likely:

Very Difficult

Economics

Monetary Policy

A central bank lowers reserve requirements while leaving its policy rate target unchanged. The direct regulatory effect is most likely to:

Very Difficult

Economics

Monetary Policy

Under a floating exchange rate, an unexpected policy rate cut by the central bank is most likely to affect the economy through which initial channel?

Easy

Economics

Monetary Policy

A central bank announces a numerical inflation objective, publishes forecasts, explains deviations from target, and retains operational control over its policy rate. This framework is best described as:

Very Difficult

Economics

Monetary Policy

A country commits to maintaining a fixed exchange rate. Capital outflows put downward pressure on its currency while domestic unemployment is rising. The central bank's most likely policy constraint is that it may need to:

Easy

Economics

Monetary Policy

A central bank has legal freedom to set policy instruments, a long record of meeting its announced objective, and a practice of publishing minutes and forecasts. The three qualities are best matched, respectively, with:

Very Difficult

Economics

Monetary Policy

Policy rates are near zero, banks are repairing balance sheets, and firms are unwilling to borrow despite low rates. The monetary policy limitation most directly illustrated is:

Easy

Economics

Monetary Policy

A primary objective of most central banks is best described as:

Easy

Economics

Monetary Policy

A central bank provides short-term liquidity to solvent banks facing sudden deposit withdrawals. This role is best described as:

Easy

Economics

Monetary Policy

Open market operations most likely involve a central bank:

Easy

Economics

Monetary Policy

A central bank that raises its policy rate is most likely pursuing:

Easy

Economics

Monetary Policy

Central bank credibility is best described as the public's belief that the central bank will:

Moderate

Economics

Monetary Policy

A central bank buys government bonds from banks. The immediate effect is most likely to:

Moderate

Economics

Monetary Policy

Under inflation targeting, a central bank facing inflation persistently above target is most likely to:

Moderate

Economics

Monetary Policy

An expansionary monetary policy is most likely to affect exchange rates by:

Moderate

Economics

Monetary Policy

A central bank's independence most likely improves monetary policy effectiveness by:

Moderate

Economics

Monetary Policy

A liquidity trap is most likely a limitation of monetary policy because:

Very Difficult

Economics

Monetary Policy

A central bank raises rates to defend an exchange-rate target while the economy is weakening and inflation is below target. The most accurate conclusion is that:

Easy

Economics

Monetary Policy

A fiscal authority increases deficit spending while the central bank simultaneously raises policy rates to keep inflation expectations anchored. The combined policy mix is best described as:

Very Difficult

Economics

Monetary Policy

A central bank with weak credibility announces a future tightening but leaves current policy unchanged. Markets expect inflation to remain above target. The announcement is least likely to be effective because:

Moderate

Economics

Monetary Transmission

A central bank cuts its policy rate and signals rates will stay low. The most likely initial transmission is:

Moderate

Economics

Oligopoly Strategy

Two dominant airlines each earn the highest individual payoff by cutting fares when the rival holds fares, but both earn lower profits when both cut fares than when both hold fares. The most accurate interpretation is:

Moderate

Economics

The Firm and Market Structures

A price-taking firm produces the output at which price equals marginal cost. At that output, price is 27, average variable cost is 25, and average total cost is 34. Fixed cost is unavoidable in the current period. The firm's most appropriate short-run decision is to:

Easy

Economics

The Firm and Market Structures

For a perfectly competitive firm, the profit-maximizing output is best described as the quantity at which:

Easy

Economics

The Firm and Market Structures

An industry consists of three producers of a chemically identical cement product. Each firm's pricing decisions depend heavily on the anticipated responses of its rivals, and entering the industry requires very large capital outlays. The market structure is most likely:

Very Difficult

Economics

The Firm and Market Structures

A sole proprietor reports revenue of 1,200,000 and explicit costs of 980,000. The owner's best alternative employment pays 120,000, and the normal return on the owner's capital is 130,000. The firm's economic result is best described as:

Easy

Economics

The Firm and Market Structures

A firm is most likely at its breakeven point when:

Easy

Economics

The Firm and Market Structures

An industry's five largest firms have market shares of 35%, 20%, 15%, 10%, and 8%, with the remainder of the market held by many small firms. The four-firm concentration ratio for this industry is closest to:

Very Difficult

Economics

The Firm and Market Structures

A manufacturer observes that doubling all inputs raises output by 2.4 times and reduces long-run average cost. During a one-month period, however, adding workers to a fixed plant causes marginal product of labor to fall. The observations are best described as:

Easy

Economics

The Firm and Market Structures

When all fixed costs are sunk, a firm should most likely shut down in the short run if price is below:

Moderate

Economics

The Firm and Market Structures

Lena Marsh manages a price-taking plant that sells 1,000 units per month at a market price of 20 per unit. Monthly total variable cost is 22,000 and monthly total fixed cost is 6,000; all fixed costs are unavoidable in the short run. Marsh's most appropriate short-run decision and rationale are to:

Easy

Economics

The Firm and Market Structures

A small apparel brand faces many competitors, has differentiated products, can enter or exit with limited barriers, and in long-run equilibrium charges a price above marginal cost while earning zero economic profit. The market structure is most likely:

Easy

Economics

The Firm and Market Structures

The Herfindahl-Hirschman Index is most appropriately calculated by:

Very Difficult

Economics

The Firm and Market Structures

An industry has five firms with market shares of 30%, 25%, 20%, 15%, and 10%. The firms with 20% and 15% shares announce a merger that regulators expect to leave all market shares otherwise unchanged. Using whole-number percentage shares, the increase in the industry's Herfindahl-Hirschman Index caused by the merger is closest to:

Very Difficult

Economics

The Firm and Market Structures

A perfectly competitive firm faces a market price of 42. Its marginal cost at output levels 5, 6, 7, and 8 is 35, 39, 42, and 47, respectively. At output 7, average variable cost is 31 and average total cost is 44. The firm's most appropriate short-run decision is to produce:

Moderate

Economics

The Firm and Market Structures

A firm's product has a price elasticity of demand of -2.0. If the firm raises price by 3%, quantity demanded is most likely to change by:

Very Difficult

Economics

The Firm and Market Structures

In a perfectly competitive industry initially in long-run equilibrium, market demand increases permanently. The most likely adjustment path is:

Moderate

Economics

The Firm and Market Structures

A company sells a differentiated consumer product, has many competitors, spends heavily on advertising, and earns zero economic profit in long-run equilibrium. The company's market structure is most likely:

Very Difficult

Economics

The Firm and Market Structures

A monopolistically competitive firm is in long-run equilibrium. Compared with a perfectly competitive firm with the same cost curves, the monopolistically competitive firm most likely has:

Moderate

Economics

The Firm and Market Structures

A firm faces the following costs at the current output: price = 18, average total cost = 22, average variable cost = 15, and marginal cost = 18. The firm should most likely:

Very Difficult

Economics

The Firm and Market Structures

A pure monopolist faces inverse demand P = 120 - 3Q and constant marginal cost of 30. Average total cost at the profit-maximizing output is 55. The monopolist's price, output, and economic profit are closest to:

Moderate

Economics

The Firm and Market Structures

A market has four firms with market shares of 40%, 30%, 20%, and 10%. The Herfindahl-Hirschman Index is closest to:

Easy

Economics

The Firm and Market Structures

For a firm facing a downward-sloping demand curve and charging a single price to all customers, marginal revenue is below price primarily because:

Moderate

Economics

The Firm and Market Structures

An oligopolist is considering a price cut. The best reason the firm should consider competitor reactions is that oligopoly is characterized by:

Very Difficult

Economics

The Firm and Market Structures

Two oligopolists choose either Maintain price or Cut price. If both Maintain, each earns 40. If one Cuts while the other Maintains, the cutter earns 55 and the other earns 20. If both Cut, each earns 25. The most appropriate conclusion is that:

Very Difficult

Economics

The Firm and Market Structures

An analyst calculates a high Herfindahl-Hirschman Index for an industry using domestic revenue shares. The most defensible use of this result is to:

Very Difficult

Economics

The Firm and Market Structures

An analyst observes two industries. Industry X has an HHI of 2,500 but high import competition and rapid technological change. Industry Y has an HHI of 1,500 but binding patents and high customer switching costs. Which statement is most accurate?

Very Difficult

Economics

The Firm and Market Structures

In an oligopoly with a dominant firm and a competitive fringe, the dominant firm's pricing decision is best described as setting output where:

Easy

Economics

The Firm and Market Structures

A monopolistically competitive firm lowers price and observes that total revenue falls. The firm's demand over that price range is most likely:

Very Difficult

Economics

The Firm and Market Structures

An industry has very large fixed costs and declining long-run average cost across the entire range of market demand. If regulators require price equal to marginal cost, the most likely result is:

Moderate

Economics

Trade Blocs and Regimes

Countries eliminate internal tariffs, adopt a common external tariff, and allow free movement of labor and capital, while keeping independent currencies, central banks, and fiscal policies. The arrangement is best described as:

Moderate

Economics

Trade Policy

A small country imposes a tariff on imported steel. Domestic producer surplus and government revenue rise. The net national welfare effect is most likely:

Easy

Economics

Understanding Business Cycles

An economist wants a single indicator whose turning points occur at approximately the same time as turning points in aggregate economic activity. The most appropriate choice is:

Easy

Economics

Understanding Business Cycles

Demand for a manufacturer's products begins to weaken, but management is uncertain whether the slowdown will persist. Because hiring and training replacement workers later would be costly, the firm's most likely first response is to:

Moderate

Economics

Understanding Business Cycles

An economy enters a contraction, household incomes fall, and consumer credit tightens. Relative to its pre-recession level, spending in which category is most likely to decline by the largest percentage?

Very Difficult

Economics

Understanding Business Cycles

Economist Amara Okafor observes the following late in a recession: final sales have stabilized and begun rising modestly, business inventories are still falling, the aggregate inventory-to-sales ratio has dropped below its long-run average, and corporate credit spreads have begun to narrow. Okafor's most appropriate near-term inference is that:

Very Difficult

Economics

Understanding Business Cycles

An economy has just moved from a negative output gap to a small positive output gap. Real GDP growth is above its long-term trend, unemployment is falling, and capacity utilization is rising. The business cycle phase is most likely:

Very Difficult

Economics

Understanding Business Cycles

Real GDP remains above potential, but growth has slowed below potential growth. Supplier delivery times are shortening, inventories are rising, and new orders are weakening. The phase is best described as:

Very Difficult

Economics

Understanding Business Cycles

Real GDP increases by 1.0% over the year while potential GDP increases by 2.5%. Which description is most accurate?

Easy

Economics

Understanding Business Cycles

A credit cycle is best described as fluctuations in the:

Very Difficult

Economics

Understanding Business Cycles

Equity prices and building permits have declined for three months. Industrial production and payroll employment remain stable, and the unemployment rate is still near a cyclical low. The most appropriate interpretation is that:

Moderate

Economics

Understanding Business Cycles

An economy is reporting rising new orders, improving building permits, and a still-high unemployment rate. The evidence most likely indicates:

Very Difficult

Economics

Understanding Business Cycles

A composite leading index rises only slightly, but its diffusion index increases from 40 to 65. The best interpretation is that:

Moderate

Economics

Understanding Business Cycles

A manufacturing purchasing managers' index rises from 48 to 52. This change most likely signals:

Very Difficult

Economics

Understanding Business Cycles

Credit spreads are unusually narrow, bank lending standards have eased for several quarters, household leverage is rising rapidly, and asset prices are accelerating. The most appropriate credit-cycle interpretation is that:

Moderate

Economics

Understanding Business Cycles

During the slowdown phase, actual output is most likely:

Very Difficult

Economics

Understanding Business Cycles

Mortgage applications and housing permits decline sharply after a rise in policy rates, while GDP and employment remain strong. The most likely conclusion is that:

Moderate

Economics

Understanding Business Cycles

A rise in the inventory-sales ratio to unusually high levels is most likely interpreted as a sign of:

Very Difficult

Economics

Understanding Business Cycles

Late in an expansion, capacity utilization reaches a cycle high, overtime hours rise, and firms report increasing difficulty hiring skilled labor. The most likely macroeconomic implication is:

Moderate

Economics

Understanding Business Cycles

A sector with earnings that are relatively stable across the business cycle is best described as:

Very Difficult

Economics

Understanding Business Cycles

An analyst states: 'A narrowing positive output gap, rising capacity utilization that has stopped increasing, and higher short-term policy rates most likely indicate the economy is in recovery.' The analyst's statement is least accurate because those indicators point more closely to:

Very Difficult

Economics

Understanding Business Cycles

A country has the following indicators: housing permits have fallen for six months, unemployment remains low, wage growth is high, and corporate profit margins are narrowing. The economy is most likely in:

Easy

Economics

Understanding Business Cycles

The most appropriate interpretation of a strong credit-cycle peak is that it: