CFA Economics for Investment Analysis

Question 1

In the CFA curriculum, which phase of the business cycle is characterized by rising GDP, declining unemployment, and increasing inflation?

Accepted Answer

Expansion

Answer

Trough

Answer

Contraction

Answer

Peak

Question 2

The Fisher Effect describes the relationship between nominal interest rates, real interest rates, and inflation as:

Accepted Answer

Nominal rate = Real rate + Expected inflation

Answer

Real rate = Nominal rate + Expected inflation

Answer

Nominal rate = Real rate × Expected inflation

Answer

Real rate = Nominal rate × (1 – Tax rate)

Question 3

Monetary policy transmission to the real economy occurs PRIMARILY through which channel?

Accepted Answer

Changes in short-term interest rates that affect borrowing costs, asset prices, and exchange rates

Answer

Government fiscal expenditure programs

Answer

Tariff and trade policy adjustments by the central bank

Answer

Direct central bank loans to private businesses

Question 4

Which of the following BEST describes stagflation?

Accepted Answer

High unemployment combined with high inflation and stagnant growth

Answer

High growth combined with low inflation

Answer

Low unemployment with rapidly rising wages

Answer

Deflation during a period of strong economic growth

Question 5

Purchasing Power Parity (PPP) theory suggests that, in the long run, exchange rates will adjust so that:

Accepted Answer

The price of a basket of goods is the same in all countries when expressed in a common currency

Answer

All countries have identical interest rates

Answer

Trade balances must equal zero for all trading partners

Answer

Inflation rates converge to zero globally

Question 6

Which of the following is considered a leading economic indicator?

Accepted Answer

Average weekly hours worked in manufacturing

Answer

Unemployment rate

Answer

Industrial production

Answer

Consumer Price Index (CPI)