IFC Understanding Economic Principles 2

Question 1

Which economic indicator measures the total market value of all goods and services produced within a country's borders in a given year?

Accepted Answer

Gross Domestic Product (GDP)

Answer

GDP measures the total market value of all goods and services produced within a country's borders, regardless of who produces them.

Question 2

When the Bank of Canada raises its overnight lending rate, what is the most likely immediate effect on the Canadian economy?

Accepted Answer

Reduced inflationary pressure as credit becomes more expensive

Answer

Raising the overnight rate increases the cost of borrowing, which reduces consumer spending and business investment, thereby cooling inflation.

Question 3

In economics, the term 'opportunity cost' refers to:

Accepted Answer

The value of the next best alternative foregone when making a decision

Answer

Opportunity cost is the value of the best alternative you give up when you choose one option over another.

Question 4

Which phase of the business cycle is characterized by rising employment, increasing GDP, and growing consumer confidence?

Accepted Answer

Expansion

Answer

The expansion phase features rising output, employment, and consumer confidence as the economy grows from its trough toward its peak.

Question 5

What does a country's current account surplus indicate?

Accepted Answer

The country exports more goods and services than it imports

Answer

A current account surplus means a country's exports of goods, services, and income exceed its imports, resulting in net inflows of foreign currency.

IFC - Investment Funds in Canada Practice Test