IAR Economics & Economic Indicators 2

Question 1

Which of the following best describes the concept of the money multiplier in banking?

Accepted Answer

The process by which initial deposits create a larger increase in the total money supply through lending

Answer

The money multiplier describes how an initial deposit expands through the banking system as banks lend out a portion of each deposit, creating a multiplied increase in the total money supply.

Question 2

An inverted yield curve (where short-term rates exceed long-term rates) has historically been associated with:

Accepted Answer

An impending economic recession

Answer

An inverted yield curve has historically preceded recessions because it signals that investors expect future interest rates (and economic activity) to decline.

Question 3

Which of the following is an example of fiscal policy?

Accepted Answer

Congress passing a tax cut to stimulate economic growth

Answer

Fiscal policy refers to government actions involving taxation and spending; a congressional tax cut is a classic example of expansionary fiscal policy.

Question 4

When comparing real GDP growth to nominal GDP growth, which statement is most accurate?

Accepted Answer

Real GDP adjusts for inflation, making it a better measure of actual economic output growth

Answer

Real GDP removes the effect of inflation from nominal GDP, allowing for a more accurate comparison of economic output across different time periods.

Question 5

A client asks about the difference between cyclical and defensive stocks during an economic downturn. Which response is most accurate?

Accepted Answer

Defensive stocks tend to maintain performance during recessions; cyclical stocks typically underperform

Answer

Defensive stocks (utilities, consumer staples, healthcare) provide stable earnings regardless of economic conditions, while cyclical stocks (travel, retail, manufacturing) rise and fall with the economic cycle.

IAR - Investment Advisory Representative Certification Practice Test

IAR - Investment Advisory Representative Certification Practice Test

IAR Economics & Economic Indicators 2