AFK Economic Concepts and Markets 2

Question 1

Which of the following best characterizes a 'bear market'?

Accepted Answer

A market decline of 20% or more from its recent peak sustained over at least two months

Answer

A bear market is conventionally defined as a decline of 20% or more in a broad market index from its most recent peak, typically lasting two months or longer.

Question 2

The Consumer Price Index (CPI) primarily measures:

Accepted Answer

Changes in prices paid by urban consumers for a representative basket of goods and services

Answer

The CPI measures changes in the price level of a weighted average market basket of consumer goods and services purchased by urban households.

Question 3

In economics, 'monetary policy' refers to actions taken by:

Accepted Answer

The Federal Reserve to manage the money supply and interest rates

Answer

Monetary policy is conducted by the Federal Reserve, which controls the money supply and credit conditions to achieve macroeconomic goals like price stability and full employment.

Question 4

The 'multiplier effect' in economics describes:

Accepted Answer

How an initial change in spending can lead to a larger total change in economic output

Answer

The multiplier effect occurs because an initial injection of spending generates income for others, who in turn spend a portion of it, creating a chain reaction that amplifies the total economic impact.

Question 5

Which statement about the relationship between bond prices and interest rates is correct?

Accepted Answer

Bond prices and interest rates move in opposite directions

Answer

Bond prices and interest rates have an inverse relationship: when market interest rates rise, existing bond prices fall to make their fixed payments competitive with newer higher-yielding bonds.

AFK - Assessment of Fundamental Knowledge Practice Test

AFK - Assessment of Fundamental Knowledge Practice Test

AFK Economic Concepts and Markets 2