CAA Business Finance & Economics 1

Question 1

What is the primary relationship between bond prices and interest rates?

Accepted Answer

They move in opposite directions

Answer

When interest rates rise, existing bond prices fall because new bonds offer higher yields, making existing bonds less attractive to investors.

Question 2

In a perfectly competitive market, which of the following best describes the long-run equilibrium?

Accepted Answer

Firms earn zero economic profits

Answer

In long-run competitive equilibrium, free entry and exit drive economic profits to zero as firms enter when profits are positive and exit when losses occur.

Question 3

Which of the following best describes 'opportunity cost'?

Accepted Answer

The value of the next best alternative foregone

Answer

Opportunity cost is the value of the best alternative you give up when making a choice, capturing the true economic cost of any decision.

Question 4

What happens to the demand for a good when the price of a complementary good increases?

Accepted Answer

Demand for the good decreases

Answer

Complementary goods are consumed together, so when the price of one rises and its demand falls, the demand for the complementary good also decreases.

Question 5

The money multiplier in a fractional reserve banking system is equal to:

Accepted Answer

The reciprocal of the reserve requirement ratio

Answer

The money multiplier equals 1 divided by the reserve requirement ratio, indicating how much the total money supply expands per dollar of monetary base injected.

(CAA) Certified Actuarial Analyst Practice Test

(CAA) Certified Actuarial Analyst Practice Test

CAA Business Finance & Economics 1