Free CFA Level I Economics Practice Questions
Economics on the CFA Level I exam covers microeconomic and macroeconomic principles, monetary and fiscal policy, international trade, and currency exchange rates. Weighted 6-9% of the exam (CFA Institute).
Sample Questions
Question 1
Easy
During a business cycle expansion, which combination of macroeconomic outcomes is most typical?
Solution
C is correct.
During expansion, increased demand for goods and services drives output higher, firms hire more workers reducing unemployment, and capacity constraints gradually push prices up.
During expansion, increased demand for goods and services drives output higher, firms hire more workers reducing unemployment, and capacity constraints gradually push prices up.
Question 2
Medium
A natural monopoly arises when:
Solution
A is correct.
A natural monopoly exists when the minimum efficient scale of production is so large relative to market demand that one firm can serve the entire market at a lower average total cost than multiple firms. This typically occurs in industries with very high fixed costs and low marginal costs, such as utilities.
A natural monopoly exists when the minimum efficient scale of production is so large relative to market demand that one firm can serve the entire market at a lower average total cost than multiple firms. This typically occurs in industries with very high fixed costs and low marginal costs, such as utilities.
Question 3
Hard
A market structure characterized by many firms, differentiated products, and low barriers to entry is most accurately described as:
Solution
C is correct. Monopolistic competition features many firms selling differentiated products (via branding, quality, or features), with low barriers to entry. Each firm faces a downward-sloping demand curve because its product is not a perfect substitute for competitors' offerings.