Sample Questions and Answers
The “Nikkei 225 Index” tracks the performance of:
A) The top 500 companies in the U.S.
B) The largest companies in Japan
C) Government bonds in Japan
D) The performance of European financial markets
Answer: B
Which of the following is an example of a “leading economic indicator”?
A) Unemployment rate
B) Consumer price index
C) Stock market returns
D) GDP growth
Answer: C
The “IS-LM model” is used to analyze the relationship between:
A) Inflation and the labor market
B) Investment, savings, and monetary policy
C) Exchange rates and trade balance
D) Supply and demand for money
Answer: B
A “currency peg” refers to:
A) A government policy to let the currency’s value fluctuate freely
B) A situation where the central bank fixes the exchange rate to another currency
C) A type of exchange rate that fluctuates with the economy
D) A government-backed currency exchange system
Answer: B
“Crowding-in” refers to the phenomenon where:
A) Government spending boosts private investment
B) Government spending reduces private investment
C) The central bank lowers interest rates to stimulate the economy
D) Inflation causes a reduction in consumer spending
Answer: A
The “current account” balance of a country is influenced by all of the following except:
A) The level of exports and imports
B) The level of capital inflows and outflows
C) Investment income from abroad
D) Government spending on domestic projects
Answer: D
“M1 money supply” consists primarily of:
A) Stocks and bonds
B) Physical currency and demand deposits
C) Long-term government bonds
D) Foreign currency reserves
Answer: B
“The paradox of thrift” suggests that:
A) Saving is always beneficial for the economy
B) Increased saving can reduce overall economic activity during a recession
C) Higher levels of investment lead to higher levels of inflation
D) Increased government spending leads to decreased private savings
Answer: B
“Fiscal policy” refers to the government’s use of:
A) Interest rates to influence the economy
B) Taxation and government spending to influence economic conditions
C) Currency controls to influence exchange rates
D) Monetary tools to adjust the money supply
Answer: B
“Asset bubbles” are most commonly associated with:
A) Inflationary pressures that lead to higher wages
B) A rapid increase in asset prices followed by a sharp decline
C) A rise in consumer demand for goods and services
D) Government fiscal policies
Answer: B
“The Taylor Rule” is a formula used by central banks to determine:
A) The level of government taxation
B) The appropriate short-term interest rate based on inflation and output
C) The value of a country’s currency
D) The money supply needed to control inflation
Answer: B
The “federal funds rate” is a key tool of:
A) Monetary policy, used by the central bank to control inflation and stabilize the economy
B) Fiscal policy, used by the government to control budget deficits
C) Trade policy, used to manage the value of imports and exports
D) Public investment strategy, used to fund long-term infrastructure projects
Answer: A
“Economic sanctions” are typically imposed by governments in order to:
A) Stimulate economic growth in the targeted country
B) Prevent inflationary pressures in the domestic economy
C) Influence the behavior of a foreign government
D) Control exchange rate fluctuations
Answer: C
Which of the following is a characteristic of a “monopolistic market”?
A) A large number of buyers and sellers
B) A single seller dominating the market
C) High competition leading to lower prices
D) Free entry and exit from the market
Answer: B
“Quantitative easing” primarily affects:
A) Government spending
B) The money supply and interest rates
C) The level of exports and imports
D) The taxation of financial assets
Answer: B
The “bank run” phenomenon occurs when:
A) Investors sell government bonds rapidly
B) Depositors rush to withdraw their funds from a bank due to fear of insolvency
C) The central bank raises interest rates suddenly
D) The central bank prints excessive amounts of money
Answer: B
“Velocity of money” refers to:
A) The speed at which money circulates in the economy
B) The inflation rate in the economy
C) The speed at which the central bank adjusts interest rates
D) The rate at which the government collects taxes
Answer: A
“Inflation targeting” is primarily used to:
A) Regulate interest rates
B) Control the supply of money
C) Set a specific inflation rate as a monetary policy goal
D) Limit government borrowing
Answer: C
“The economic multiplier effect” refers to the idea that:
A) A rise in government spending can have a larger impact on the overall economy than the initial spending
B) Higher wages lead to a direct increase in inflation
C) Reductions in government spending will result in equal decreases in GDP
D) The money supply will always lead to inflationary pressures
Answer: A
“Austerity measures” are typically implemented in response to:
A) High levels of inflation
B) A budget deficit and national debt concerns
C) A severe recession or depression
D) The need to stimulate consumer spending
Answer: B
A “lender of last resort” is typically associated with:
A) Central banks providing emergency loans to financial institutions facing liquidity problems
B) Private lenders providing high-interest loans to businesses
C) Government agencies managing public debt
D) Stock market brokers offering margin loans
Answer: A
“The Business Cycle” refers to:
A) The fluctuation of asset prices in financial markets
B) The long-term trend of economic growth in an economy
C) The pattern of expansion and contraction in economic activity
D) The pattern of inflationary pressures throughout the year
Answer: C
The “economic cost” of inflation includes:
A) The reduction in consumer demand for goods
B) The decrease in the purchasing power of money
C) The increased production costs due to higher wages
D) The increase in exports due to lower domestic prices
Answer: B
“Stagflation” occurs when an economy experiences:
A) High inflation and low unemployment
B) Low inflation and high unemployment
C) High inflation and high unemployment
D) Low inflation and low unemployment
Answer: C
“Velocity of circulation” is a concept that measures:
A) The rate at which money changes hands in the economy
B) The rate of inflation in an economy
C) The frequency of government spending
D) The speed at which foreign currency is exchanged
Answer: A
“Consumer confidence index” is a measure of:
A) The percentage of consumers who have debt
B) The level of consumer optimism about the economy
C) The rate at which consumers save their income
D) The number of consumers seeking loans for new homes
Answer: B
The “S&P 500” index tracks:
A) The performance of 500 large publicly traded companies in the U.S.
B) The top 100 stocks in the U.S.
C) The bond market performance in the U.S.
D) The performance of global companies across sectors
Answer: A
“Frictional unemployment” refers to:
A) Unemployment due to long-term economic downturns
B) Temporary unemployment caused by individuals transitioning between jobs
C) Unemployment caused by structural changes in the economy
D) Unemployment caused by a lack of job openings
Answer: B
“Monetary policy” is primarily concerned with:
A) Government spending and taxation
B) Managing the money supply and interest rates
C) Regulating stock market transactions
D) Setting wages and controlling inflation
Answer: B
Which of the following best describes “the natural rate of unemployment”?
A) The unemployment rate when the economy is in a recession
B) The level of unemployment due to structural and frictional factors
C) The unemployment rate caused by cyclical factors
D) The highest level of unemployment a country can have
Answer: B
“The discount rate” refers to:
A) The interest rate charged by the central bank to commercial banks for overnight loans
B) The interest rate on government bonds
C) The interest rate that banks charge on mortgages
D) The interest rate that banks offer to consumers for savings
Answer: A
“The business cycle” is characterized by:
A) Continuous, steady economic growth
B) Cyclical fluctuations in economic activity, including periods of expansion and contraction
C) Consistent inflationary pressures in the economy
D) A constant rise in consumer spending
Answer: B
“Disinflation” refers to:
A) An increase in inflation over time
B) A decrease in the rate of inflation
C) A period of negative inflation
D) A sudden spike in inflation
Answer: B
“A balanced budget” occurs when:
A) The government’s total revenue equals its total expenditure
B) The government runs a deficit
C) The government runs a surplus
D) The central bank balances the money supply
Answer: A
“Gross National Product” (GNP) includes:
A) Only goods and services produced within a country’s borders
B) Only domestic investments in real estate
C) The total value of goods and services produced by a country’s citizens, both domestically and abroad
D) The total value of stocks and bonds within a country
Answer: C
“The Phillips curve” shows the relationship between:
A) Inflation and unemployment
B) Government spending and inflation
C) GDP growth and consumer spending
D) Tax rates and economic growth
Answer: A
“Crowding-out” occurs when:
A) Government spending reduces private sector investment
B) The central bank increases the money supply to stimulate demand
C) The private sector borrows more from foreign markets
D) The government reduces public spending to control inflation
Answer: A
“The Laffer Curve” suggests that:
A) There is a direct relationship between tax rates and government revenue
B) As tax rates increase beyond a certain point, total tax revenue may decrease
C) Higher tax rates always lead to higher government revenue
D) Tax cuts have no effect on economic growth
Answer: B
“The trade deficit” occurs when:
A) A country imports more than it exports
B) A country exports more than it imports
C) The central bank imposes tariffs on foreign goods
D) Government spending exceeds tax revenue
Answer: A
“The Reserve Requirement” refers to:
A) The amount of reserves that banks are required to hold by law
B) The level of cash reserves held by the central bank
C) The amount of money that can be borrowed by the government
D) The level of money that the central bank is willing to lend
Answer: A
“The Labor Productivity Index” measures:
A) The total number of unemployed workers in the economy
B) The efficiency with which labor inputs are converted into output
C) The level of wage growth in the economy
D) The rate at which labor market participation is increasing
Answer: B
“The fiscal multiplier” refers to:
A) The ratio of government spending to GDP growth
B) The ratio of tax cuts to economic expansion
C) The increase in economic output resulting from an increase in government spending
D) The rate of tax revenue to total government spending
Answer: C
“The balance of payments” accounts for:
A) A country’s government budget balance
B) The total value of a country’s exports and imports of goods and services
C) The level of financial transactions between countries, including trade, investment, and loans
D) The change in the unemployment rate over time
Answer: C
“The Capital Account” in the balance of payments records:
A) The financial flows from international trade
B) The capital flows related to foreign investments and loans
C) The government’s fiscal policy changes
D) The exchange rate fluctuations between countries
Answer: B
“The Nominal Exchange Rate” refers to:
A) The value of a country’s currency in terms of another currency
B) The level of international trade within a country
C) The inflation rate adjusted for exchange rates
D) The price level of goods and services in a country
Answer: A
“The J-Curve effect” refers to:
A) A scenario where the trade balance initially worsens after a devaluation of the currency before improving
B) A curve that shows the relationship between GDP growth and inflation
C) A sudden rise in the value of a country’s currency following increased exports
D) The growth in government debt following a financial crisis
Answer: A
“Hyperinflation” occurs when:
A) Inflation rises moderately over a long period
B) The economy experiences rapid and uncontrolled increases in prices
C) The government adopts deflationary policies
D) The money supply remains constant over time
Answer: B
“The monetary base” refers to:
A) The total amount of currency in circulation, plus reserves held by the central bank
B) The total amount of government spending in the economy
C) The interest rates set by central banks
D) The money supply adjusted for inflation
Answer: A
“Purchasing Managers’ Index” (PMI) is used to gauge:
A) The level of inflation in an economy
B) The health of the manufacturing sector in a country
C) The unemployment rate in the economy
D) The level of interest rates in the economy
Answer: B
“Inflation targeting” is a monetary policy framework that aims to:
A) Control the stock market
B) Set specific targets for GDP growth
C) Maintain a stable inflation rate within a predetermined range
D) Reduce the national debt
Answer: C
“Currency depreciation” occurs when:
A) A country’s currency strengthens relative to other currencies
B) The value of a country’s currency declines relative to other currencies
C) The government fixes the exchange rate
D) The central bank prints additional currency
Answer: B
“The Marginal Propensity to Consume” (MPC) is:
A) The percentage of income saved rather than spent
B) The portion of income that consumers will spend on goods and services
C) The rate at which consumption decreases with a decrease in income
D) The government’s spending on social welfare programs
Answer: B
Reviews
There are no reviews yet.