CFA Level I Economics Practice Questions
Economics makes up 4 of every 50 questions on a Tigertest CFA Level I practice test. Here are 10 of the 16 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on CFA Institute's Level I topic weights for 2027. Original questions with four choices (the real exam has three). Not affiliated with CFA Institute.
1. A cinema raises ticket prices by 10% and attendance falls by 5%. Demand is price inelastic, so total revenue:
- A.Falls by 5%
- B.Rises
- C.Falls
- D.Is unchanged
Answer: B. Own-price elasticity is -5% / 10% = -0.5, which is inelastic (absolute value below 1). The price rise outweighs the drop in quantity, so revenue rises.
2. When the price of good X rises, demand for good Y rises. The cross-price elasticity is positive, so X and Y are:
- A.Inferior goods
- B.Normal goods
- C.Complements
- D.Substitutes
Answer: D. Positive cross-price elasticity means buyers switch to Y when X costs more, the mark of substitutes. Complements have negative cross-price elasticity.
3. In long-run equilibrium under perfect competition, each firm:
- A.Earns zero economic profit
- B.Produces where MR exceeds MC
- C.Earns a monopoly profit
- D.Prices above marginal cost
Answer: A. Free entry and exit drive price to the minimum of average total cost, so firms earn only a normal return (zero economic profit), with price equal to marginal cost.
4. A profit-maximizing monopolist chooses the output at which:
- A.Average cost is at its minimum
- B.Total revenue is at its maximum
- C.Marginal revenue equals marginal cost
- D.Price equals marginal cost
Answer: C. Every profit maximizer produces where MR = MC. The monopolist then charges the price on the demand curve for that output, which is above marginal cost.
5. A market has a few large firms whose pricing decisions depend on how their rivals react. This market structure is:
- A.Perfect competition
- B.Pure monopoly
- C.Oligopoly
- D.Monopolistic competition
Answer: C. Strategic interdependence among a few sellers defines oligopoly. Monopolistic competition has many firms with differentiated products and little interdependence.
6. As an economy moves from a peak into a contraction, the inventory-to-sales ratio typically:
- A.Rises
- B.Stays the same
- C.Falls to zero
- D.Falls
Answer: A. Sales slow before firms cut production, so unsold inventory builds up relative to sales. Firms then cut orders, which deepens the contraction.
7. Which is an automatic stabilizer in fiscal policy?
- A.A one-off tax rebate
- B.A new infrastructure bill
- C.Central bank bond purchases
- D.Progressive income taxes
Answer: D. Progressive taxes and unemployment benefits change with the cycle without new legislation, cushioning swings in disposable income. Bond purchases by a central bank are monetary policy.
8. When a central bank buys government bonds in open market operations, bank reserves and short-term interest rates typically:
- A.Fall and fall
- B.Rise and fall
- C.Fall and rise
- D.Rise and rise
Answer: B. Paying for the bonds adds reserves to the banking system, and more reserves push short-term rates down. Selling bonds does the opposite.
9. The quantity theory of money is expressed as:
- A.MY = PV
- B.MV = PY
- C.MP = VY
- D.M = PV / Y
Answer: B. The equation of exchange is money supply x velocity = price level x real output. If velocity and output are stable, money growth shows up as inflation.
10. The EUR/USD rate is 1.1000 (USD per euro) and USD/JPY is 150.00 (yen per dollar). The EUR/JPY cross rate (yen per euro) is:
- A.148.90
- B.151.10
- C.136.36
- D.165.00
Answer: D. Yen per euro = (USD per euro) x (yen per USD) = 1.1000 x 150.00 = 165.00. Dividing instead gives 136.36.
Practice all 16 economics questions, and the rest of the 200-question bank, in the free CFA Level I training sets. Questions you miss come back until you have mastered them.
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