Ultimate 2025 CIMA Exam Preparation Plan:
Modules Breakdown, Question Types, and
Time Management
Question 1: If the economy is shrinking, firms with low operating leverage will experience:
A. significantly larger decreases in profits than firms with high operating leverage.
B. proportionally larger decreases in profits than firms with high operating leverage.
C. smaller decreases in profits than firms with high operating leverage.
D. no change in profits,1 unlike firms with high operating leverage.
Rationale: Firms with high operating leverage have a greater proportion of fixed costs. As sales
decrease, these fixed costs are spread over fewer units, leading to a more significant decrease in
profits. Conversely, firms with low operating leverage (more variable costs) will see their
variable expenses decrease as revenue decreases, thus experiencing a smaller impact on their
bottom line.
Question 2: The average duration of unemployment and changes in the consumer price index for
services are generally classified as:
A. Leading Economic Indicators
B. Coincident Economic Indicators
C. Lagging Economic Indicators
D. Counter-cyclical Indicators
Rationale: These indicators reflect economic changes that have already occurred, indicating that
the economy has already shifted direction.
Question 3: A firm in an industry that is very sensitive to the business cycle will likely have a
stock beta:
A. less than 0.5.
B. equal to 1.0.
,C. greater than 1.0.
D. between 0.5 and 1.0.
Rationale: Cyclical stocks are more volatile than the overall market, meaning their price
movements tend to be more exaggerated. A beta greater than 1.0 signifies higher volatility
compared to the market.
Question 4: Assume that the Federal Reserve decreases the money supply. This action will cause
___________________ to decrease.
A. Government spending
B. Exports
C. Investment in the economy
D. Consumer confidence
Rationale: Decreasing the money supply is an economic contraction strategy. This action makes
borrowing more expensive, which discourages investment and overall economic output.
Question 5: If the currency of your country is depreciating, the result should be to
______________ exports and to _______________ imports.
A. stimulate / stimulate
B. discourage / discourage
C. stimulate / discourage
D. discourage / stimulate
Rationale: A depreciating currency makes a country's goods and services cheaper for foreign
buyers, thereby stimulating exports. Conversely, foreign goods and services become more
expensive for domestic consumers, discouraging imports.
Question 6: Increases in the money supply will cause demand for investment and consumption
goods to _______ in the short run and cause prices to _______ in the long run.
A. Decrease / decrease
B. Increase / decrease
C. Increase / increase
, D. Decrease / increase
Rationale: An increase in the money supply typically leads to lower interest rates, making it
cheaper to borrow for investment and consumption, thus increasing demand in the short run.
Over the long run, an increased money supply relative to goods and services can lead to higher
prices (inflation).
Question 7: Supply-side economists wishing to stimulate the economy are most likely to
recommend:
A. an increase in government spending.
B. a decrease in the tax rate.
C. an increase in the money supply.
D. a decrease in interest rates.
Rationale: Supply-side economics focuses on policies that encourage production and
investment. Lowering tax rates is believed to incentivize individuals and businesses to work,
save, and invest more, thereby stimulating economic growth.
Question 8: Which of the following combinations will result in a sharply increasing yield curve?
A. Decreasing future expected short rates and decreasing liquidity premiums
B. Increasing future expected short rates and decreasing liquidity premiums
C. Decreasing future expected short rates and increasing liquidity premiums
D. Increasing future expected short rates and increasing liquidity premiums
Rationale: An increasing yield curve (upward sloping) implies that investors expect higher
interest rates in the future. Additionally, higher liquidity premiums for longer-term bonds
(compensation for holding less liquid assets for longer) would also contribute to an upward
slope.
Question 9: Which of the following statements are typically accurate?
I. Reflation often occurs near a market top when rates are historically low.
II. Disinflation occurs when the inflation rate decreases near market bottom.
III. Deflation occurs when prices and values fall due to too much supply.
IV. Stagflation occurs when prices rise during low growth periods.
Modules Breakdown, Question Types, and
Time Management
Question 1: If the economy is shrinking, firms with low operating leverage will experience:
A. significantly larger decreases in profits than firms with high operating leverage.
B. proportionally larger decreases in profits than firms with high operating leverage.
C. smaller decreases in profits than firms with high operating leverage.
D. no change in profits,1 unlike firms with high operating leverage.
Rationale: Firms with high operating leverage have a greater proportion of fixed costs. As sales
decrease, these fixed costs are spread over fewer units, leading to a more significant decrease in
profits. Conversely, firms with low operating leverage (more variable costs) will see their
variable expenses decrease as revenue decreases, thus experiencing a smaller impact on their
bottom line.
Question 2: The average duration of unemployment and changes in the consumer price index for
services are generally classified as:
A. Leading Economic Indicators
B. Coincident Economic Indicators
C. Lagging Economic Indicators
D. Counter-cyclical Indicators
Rationale: These indicators reflect economic changes that have already occurred, indicating that
the economy has already shifted direction.
Question 3: A firm in an industry that is very sensitive to the business cycle will likely have a
stock beta:
A. less than 0.5.
B. equal to 1.0.
,C. greater than 1.0.
D. between 0.5 and 1.0.
Rationale: Cyclical stocks are more volatile than the overall market, meaning their price
movements tend to be more exaggerated. A beta greater than 1.0 signifies higher volatility
compared to the market.
Question 4: Assume that the Federal Reserve decreases the money supply. This action will cause
___________________ to decrease.
A. Government spending
B. Exports
C. Investment in the economy
D. Consumer confidence
Rationale: Decreasing the money supply is an economic contraction strategy. This action makes
borrowing more expensive, which discourages investment and overall economic output.
Question 5: If the currency of your country is depreciating, the result should be to
______________ exports and to _______________ imports.
A. stimulate / stimulate
B. discourage / discourage
C. stimulate / discourage
D. discourage / stimulate
Rationale: A depreciating currency makes a country's goods and services cheaper for foreign
buyers, thereby stimulating exports. Conversely, foreign goods and services become more
expensive for domestic consumers, discouraging imports.
Question 6: Increases in the money supply will cause demand for investment and consumption
goods to _______ in the short run and cause prices to _______ in the long run.
A. Decrease / decrease
B. Increase / decrease
C. Increase / increase
, D. Decrease / increase
Rationale: An increase in the money supply typically leads to lower interest rates, making it
cheaper to borrow for investment and consumption, thus increasing demand in the short run.
Over the long run, an increased money supply relative to goods and services can lead to higher
prices (inflation).
Question 7: Supply-side economists wishing to stimulate the economy are most likely to
recommend:
A. an increase in government spending.
B. a decrease in the tax rate.
C. an increase in the money supply.
D. a decrease in interest rates.
Rationale: Supply-side economics focuses on policies that encourage production and
investment. Lowering tax rates is believed to incentivize individuals and businesses to work,
save, and invest more, thereby stimulating economic growth.
Question 8: Which of the following combinations will result in a sharply increasing yield curve?
A. Decreasing future expected short rates and decreasing liquidity premiums
B. Increasing future expected short rates and decreasing liquidity premiums
C. Decreasing future expected short rates and increasing liquidity premiums
D. Increasing future expected short rates and increasing liquidity premiums
Rationale: An increasing yield curve (upward sloping) implies that investors expect higher
interest rates in the future. Additionally, higher liquidity premiums for longer-term bonds
(compensation for holding less liquid assets for longer) would also contribute to an upward
slope.
Question 9: Which of the following statements are typically accurate?
I. Reflation often occurs near a market top when rates are historically low.
II. Disinflation occurs when the inflation rate decreases near market bottom.
III. Deflation occurs when prices and values fall due to too much supply.
IV. Stagflation occurs when prices rise during low growth periods.
