CFA Economics for Investment Analysis 3

Question 1

An inverted yield curve (long-term rates below short-term rates) is MOST commonly interpreted as:

Accepted Answer

A recessionary signal, as the market expects future short-term rates to fall

Answer

An inverted yield curve typically signals that markets expect economic slowdown or recession ahead, anticipating future rate cuts that will bring short-term rates down.

Question 2

The Taylor Rule is used by central banks to:

Accepted Answer

Determine an appropriate target for the policy interest rate based on inflation and output gaps

Answer

The Taylor Rule provides a formula for setting the policy rate based on the neutral rate, the inflation gap (actual minus target), and the output gap (actual vs. potential GDP).

Question 3

In international economics, a current account surplus means that a country is:

Accepted Answer

A net exporter of goods and services; receiving more from abroad than it sends

Answer

A current account surplus means exports of goods, services, income, and transfers exceed imports; the country is a net creditor to the rest of the world.

Question 4

Which of the following BEST describes the concept of potential GDP?

Accepted Answer

The level of output an economy can sustainably produce at full employment with stable inflation

Answer

Potential GDP is the sustainable output level when all resources (labor, capital) are fully and efficiently employed without generating inflationary pressures.

Question 5

In the aggregate demand-aggregate supply (AD-AS) model, a negative supply shock (e.g., rising oil prices) will MOST likely result in:

Accepted Answer

Lower output and higher inflation (stagflation) in the short run

Answer

A negative supply shock shifts the short-run aggregate supply curve left, raising the price level (inflation) and reducing real output (recessionary gap) simultaneously — stagflation.

CFA Practice Test

CFA Practice Test

CFA Economics for Investment Analysis 3