Economic & Financial Concepts Flashcards
7 cards from real IAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Economic & Financial Concepts flashcards as text
The 'velocity of money' in the quantity theory of money (MV = PQ) represents:
Answer: The rate at which a unit of currency circulates through the economy
Velocity of money (V) measures how frequently a unit of currency is used to purchase goods and services within a given time period.
An investment adviser analyzes a stock and finds its intrinsic value exceeds its current market price. According to fundamental analysis, this stock is:
Answer: Undervalued and represents a potential buying opportunity
When intrinsic value exceeds market price, the stock is undervalued, suggesting it may be a buying opportunity if the market eventually corrects to reflect true value.
Which of the following is an example of an 'automatic stabilizer' in the economy?
Answer: Unemployment insurance payments that increase automatically during downturns
Automatic stabilizers like unemployment insurance respond automatically to economic conditions — payments rise during recessions and fall during expansions — without new legislative action.
The 'real' interest rate is best defined as:
Answer: The nominal interest rate minus the expected inflation rate
The real interest rate equals the nominal rate minus inflation, representing the actual purchasing power gain earned by a lender or lost by a borrower.
In the context of capital markets, 'market efficiency' (as described by the Efficient Market Hypothesis) means that:
Answer: Stock prices fully reflect all available information at any given time
The Efficient Market Hypothesis holds that asset prices instantaneously reflect all available information, making it impossible to consistently achieve above-market returns.
Which of the following would most likely cause a leftward shift (decrease) in aggregate demand?
Answer: A sharp rise in household debt levels reducing consumer spending
A sharp rise in household debt burdens reduces consumers' disposable income for spending, contracting aggregate demand and shifting the AD curve leftward.
The 'multiplier effect' in economics refers to:
Answer: The amplified impact on total economic output from an initial change in spending
The multiplier effect describes how an initial injection of spending ripples through the economy, generating a larger total increase in GDP than the original amount.