CFA^® Level I Economics Tips

By: Kaplan Schweser

February 18, 2025

Starting to study Economics early is smart, especially if you have no prior experience because it covers a wide range of material and is present at all three exam levels. Therefore, it is crucial to gain a strong foundational knowledge in Economics during your CFA Level I exam prep to ensure a successful CFA candidacy.

TABLE OF CONTENTS

Topics in Demand and Supply Analysis
The Firm and Market Structures
Aggregate Output, Prices, and Economic Growth
Understanding Business Cycles
Monetary and Fiscal Policy
Introduction to Geopolitics
International Trade and Capital Flows
Currency Exchange Rates

How To Study for CFA Level I Economics Topic

After covering the previous curriculum topics, take each Economics reading in turn and focus on the terminology given, paying particular attention to what the Learning Outcome Statement requires of you.

Remember this is Level I - several of these topics will be covered in more detail at later levels, so try not to get too bogged down in the minutiae and keep moving through the material.

Once you have covered the whole topic you will be better equipped to go back and understand which readings you need to spend more time focusing on.

CFA Level I 6-Month Study Plan

What is a Learning Outcome Statement (LOS) for the CFA Exam?

Learning Outcome Statements while studying for a CFA exam refer to specific skills and concepts you should possess within an exam topic whereas exam topics describe the broader body of knowledge you should have. For example, the Economics exam topic at Level I has many LOSs that you’ll need to learn.

An example of a CFA Economics LOS is “describe how economies of scale and diseconomies of scale affect costs.”

Why CFA Candidates Need To Learn Economics

The Economics topic helps to put so many other topics into the context of what is happening in the wider business world. There are many topics that are introduced across the readings which set the scene for the fictional businesses we face in the CFAI questions. Although only one topic in each question in the CFAI examinations, the content covered here undoubtedly affects the day-to-day life of a business in the real world.

Assess your baseline knowledge of the Level I CFA Program curriculum with a free CFA diagnostic exam

How Much of the CFA Exam Tests Economics?

The Economics topic represents 6%-9% of the Level I exam, which is approximately 10-16 questions. This topic is tested in the morning session, within the Tools Functional Area, alongside Quantitative Methods and Financial Statement Analysis.

Is the CFA Level I Economics Topic Hard?

Economics is one of the most divisive topics from this perspective. Candidates who have never studied Economics before can find this a tough area as it covers a wide range of concepts (with varying levels of depth).

However, successful candidates will focus on each reading in turn. It’s likely you’ll find one or two of the readings more challenging to master, rather than all of them.

If you have prior knowledge of Economics, you are likely to find this an easier topic, however, it is crucially important to focus on what is covered in the CFAI Level I syllabus rather than trying to bring in any other knowledge you have, which will not be tested.

Try Today’s Featured Level I Practice Question

CFA Prerequisites for Level I Economics

The Level I Economics curriculum assumes candidates are familiar with concepts such as:

Supply and demand
Utility-maximizing consumers
The product and cost curves of firms

CFAI has posted three assigned readings to its website as prerequisites for Level I, so ensure you review these before you delve into the assigned readings.

When Should CFA Level I Candidates Study Economics?

Economics can be covered at any point during your Level I CFA exam studies. If you have a background in Economics you might like to study this early on to check any crossover with prior knowledge, or any further studying required.

This topic has a wide breadth so it is worth starting on it early on, whether you have prior knowledge or not, to ensure you’re aware of the task at hand.

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Economics Prerequisite Readings

Economics readings will be one volume of readings. Volume 2 from 2023 will move to “pre-requisite” status, which means it will not be tested but available for you as needed.

CFA prerequisite readings are meant to help you meet the prerequisite knowledge requirements for the CFA Program.

2024 CFA Level I Economics Prerequisite Readings

Below are overviews of each Level I Economics reading and what you are expected to learn.

Topics in Demand and Supply Analysis

The first reading covers elasticity, normal and inferior goods, as well as economies and diseconomies of scale. It also looks at breakeven and shutdown points of production, considering what choice a business would make depending on its marginal cost, average total cost, and average variable cost.

The Firm and Market Structures

There are four market structures covered in this reading:

Perfect competition
Monopolistic competition
Oligopoly
Monopoly

After studying this area, you will be able to compare and contrast these structures as well as use concentration measures to determine market power.

Aggregate Output, Prices, and Economic Growth

The focus here is on macroeconomics and the measurement of aggregate economic output using GDP. The fundamental relationship is introduced as well as the aggregate demand and aggregate supply curves, before considering what factors would cause shifts in these curves (such as changes in consumers’ wealth and exchange rates.

The reading finishes by looking at the production function and growth in potential GDP.

Understanding Business Cycles

The business cycle has four phases:

Expansion
Peak
Contraction or recession
Trough

These are the starting point for top-down financial analysis and this reading covers how to interpret economic indicators to understand which phase an economy is in.

Indicators of unemployment and inflation are looked at in more detail in the second half of this reading.

Monetary and Fiscal Policy

Monetary policy refers to the central bank’s actions that affect the quantity of money and credit in an economy, while fiscal policy refers to a government’s use of spending and taxation to influence economic activity.

This reading looks at the tools used in each of these and their expansionary or contractionary impacts. This reading has a lot of content but can be broken down into smaller sections.

Introduction to Geopolitics

This reading focuses on terminology, an explanation of what geopolitics is, its relationship with globalization, the tools used within geopolitics, and what impact geopolitical risk has on investments.

International Trade and Capital Flows

You will first compare gross domestic product and gross national product, before moving on to calculations of comparative and absolute advantage.

Examples of trade restrictions include tariffs and quotas, as well as agreements including trading blocs and common markets.

Balance of payments accounts is explained before ending with the functions and objectives of international organizations such as the World Bank.

Currency Exchange Rates

It is important to understand spot exchange rates, and forward exchange rates, to be able to calculate exchange rates based on currency appreciation and depreciation as well as cross rates.

Towards the end of the reading, there is a discussion regarding exchange rate regimes, as well as the impact exchange rates have on trade deficits.

Review CFA level I Economics with Free Flashcards

CFA Level I Exam Practice Questions

Answer these 5 questions to test your readiness for the Level I Exam.

Is Economics the Same for CFA Level I and Level II?

Economics is weighted less at Level II than at Level I. At Level II, the syllabus has one reading on exchange rates, one on economic growth, and one on economic regulation. To a certain extent, Level II has a smaller breadth of topics covered than Level I, but of course Level I is assumed knowledge.

What Are the Best Books for CFA Level I Economics?

We would recommend starting off by reading the Schweser CFA Level I SchweserNotes for Alternative Investments, which also provide illustrative examples and Module Quizzes for you to test your understanding. Once you have covered the material, you should cover as many other questions as possible from our range of resources such as the Schweser CFA Level I QBank.

Ready To Start Preparing For Economics?

Looking for more guidance on how to prepare for Economics? Enroll in one of our CFA Level I Premium study packages to receive expert instruction, CFA Program study materials, and more. Give yourself the best chance to prepare, practice, and perform on the CFA exam.