IAR Economics & Economic Indicators 3

Question 1

Quantitative easing (QE) is a monetary policy in which a central bank:

Accepted Answer

Purchases large quantities of securities to inject liquidity into the economy

Answer

Raises reserve requirements to reduce inflation

Answer

Increases the discount rate to slow lending activity

Answer

Reduces government spending to balance the federal budget

Question 2

Which of the following best describes the concept of purchasing power parity (PPP)?

Accepted Answer

The theory that exchange rates between currencies should adjust so that identical goods cost the same in different countries

Answer

The tendency for interest rates to equalize across international markets

Answer

The relationship between a country's trade surplus and its currency value

Answer

A method for calculating real returns on foreign investments after taxes

Question 3

An investment adviser notes that the economy is in the expansion phase of the business cycle. Which asset class has historically tended to perform best during this phase?

Accepted Answer

Equities (stocks)

Answer

Long-term government bonds

Answer

Cash and money market instruments

Answer

Gold and precious metals

Question 4

The current account of a country's balance of payments records:

Accepted Answer

Trade in goods and services, investment income, and current transfers

Answer

Only foreign direct investment flows in and out of the country

Answer

Changes in a country's foreign exchange reserves

Answer

Purchases and sales of financial assets across borders

Question 5

A client is concerned about inflationary risk in their portfolio. Which of the following investments has historically provided the best hedge against unexpected inflation?

Accepted Answer

Treasury Inflation-Protected Securities (TIPS)

Answer

Long-term fixed-rate corporate bonds

Answer

Preferred stock with fixed dividends

Answer

Standard certificates of deposit (CDs)

Question 6

Which of the following economic concepts describes the additional output generated by employing one more unit of a factor of production?

Accepted Answer

Marginal productivity

Answer

Economies of scale

Answer

Comparative advantage

Answer

Velocity of money

Question 7

When a country's central bank intervenes to weaken its own currency, which of the following outcomes would an investment adviser most likely expect?

Accepted Answer

Domestic goods become cheaper for foreign buyers, potentially boosting exports

Answer

Domestic exports become more expensive for foreign buyers, reducing trade

Answer

Foreign imports become less expensive for domestic consumers

Answer

The country's inflation rate will immediately decrease