Macroeconomics & Market Analysis Flashcards

Which economic indicator is considered a leading indicator of future economic activity?

Answer: Building permits issued

Building permits are a leading indicator because they signal future construction activity and economic expansion before it occurs.

When the Federal Reserve raises the federal funds rate, what is the typical immediate effect on bond prices?

Answer: Bond prices fall

Rising interest rates cause existing bond prices to fall because newly issued bonds offer higher yields, making older bonds less attractive.

Which phase of the business cycle is characterized by rising employment, increasing consumer spending, and growing GDP?

Answer: Expansion

The expansion phase is defined by rising employment, increasing output, and growing consumer spending as economic activity accelerates.

What does the yield curve inversion (short-term rates exceeding long-term rates) historically signal?

Answer: A potential recession in the near future

An inverted yield curve has historically been a reliable predictor of recessions, typically occurring 6–18 months before economic downturns.

The Consumer Price Index (CPI) primarily measures:

Answer: Changes in prices paid by urban consumers for a basket of goods and services

The CPI tracks changes in the price level of a representative basket of consumer goods and services purchased by urban households.

Which monetary policy tool does the Federal Reserve use most frequently to influence short-term interest rates?

Answer: Open market operations

Open market operations — buying and selling U.S. Treasury securities — are the Fed's primary and most frequently used tool to influence the federal funds rate and money supply.

A country running a current account deficit is best described as:

Answer: Spending more on foreign goods and services than it earns from exports

A current account deficit means a country imports more goods, services, and income than it exports, resulting in a net outflow of domestic currency.