TheoryFree Series 66 Practice Test
Take a free Series 66 practice test for 2026 with questions, answers, explanations, PDF download and timed mock exam links.
Series 66 Questions
Open each answer, read the explanation, then continue into the full practice flow.
Q1Which economic theory holds that business cycles are caused primarily by changes in the money supply and credit conditions rather than real sector shocks?
Show answer
✓ Correct answer: Austrian Business Cycle theory
Austrian Business Cycle theory attributes booms and busts to credit expansion by central banks that distort interest rates and lead to malinvestment. Real Business Cycle theory attributes cycles to technology shocks.
Q2Which type of security is specifically designed to protect investors against inflation risk?
Show answer
✓ Correct answer: Treasury Inflation-Protected Securities (TIPS)
TIPS have their principal adjusted by changes in the CPI. As inflation rises, the principal increases, so interest payments (a fixed percentage of adjusted principal) also rise, protecting purchasing power.
Q3When the Federal Reserve raises the discount rate, the most direct immediate effect is:
Show answer
✓ Correct answer: Borrowing from the Fed becomes more expensive for banks
The discount rate is what the Fed charges banks for short-term loans at the discount window. Raising it makes emergency borrowing from the Fed more costly, encouraging banks to seek funds elsewhere and generally tightening credit.
Q4Which of the following relationships between interest rates and bond prices is correct?
Show answer
✓ Correct answer: When interest rates rise, existing bond prices fall
Bond prices and interest rates have an inverse relationship. When market rates rise, existing bonds paying lower coupons become less attractive, so their prices fall. Long-term bonds are MORE sensitive (higher duration) to rate changes, not less.
Q5The yield curve normally slopes upward because:
Show answer
✓ Correct answer: Investors require higher yields to compensate for greater uncertainty and lower liquidity of longer maturities
A normal (upward-sloping) yield curve reflects liquidity preference: investors demand a risk premium for tying up capital longer. Greater price volatility, reinvestment risk, and uncertainty over time justify higher long-term yields.
Q6The Federal Reserve's 'dual mandate' refers to its goals of:
Show answer
✓ Correct answer: Maximum employment and stable prices
The Fed's dual mandate from Congress is to promote maximum employment and stable prices (price stability/low inflation). A third implicit goal is moderate long-term interest rates, sometimes called a triple mandate.
Q7Quantitative easing (QE) is a monetary policy tool that involves:
Show answer
✓ Correct answer: Large-scale purchases of longer-term securities to inject liquidity when short-term rates are near zero
QE is used when conventional monetary policy is constrained by the zero lower bound on interest rates. By buying long-term Treasuries and mortgage-backed securities, the Fed expands its balance sheet and pushes down long-term yields.
Q8If the Federal Reserve wishes to slow an overheating economy, which of the following would be a contractionary monetary policy action?
Show answer
✓ Correct answer: Sell U.S. Treasury securities in the open market
Selling Treasuries in the open market removes reserves from the banking system (contractionary). Lowering rates, reducing requirements, and cutting the discount rate are all expansionary policies.
Q9Fiscal policy refers to the use of which government tools to influence the economy?
Show answer
✓ Correct answer: Government spending and taxation
Fiscal policy is conducted by the legislative and executive branches through decisions about government spending levels and tax rates. Monetary policy, by contrast, involves control of the money supply and interest rates by the central bank.
Q10Which of the following is an example of an automatic fiscal stabilizer?
Show answer
✓ Correct answer: Unemployment insurance benefit payments that increase automatically during downturns
Automatic stabilizers work without new legislative action. Unemployment insurance payments rise automatically in recessions (injecting income), and tax revenues fall automatically, both cushioning the economic decline.
Full Series 66 bank + unlimited mocks
Try 30 questions free. Unlock the complete Series 66 question bank, every explanation, and unlimited timed mock exams. Practice on any device.
Unlock Series 66 →