AIP Macroeconomics & Market Analysis 1

Question 1

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

Accepted Answer

Building permits issued

Answer

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

Question 2

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

Accepted Answer

Bond prices fall

Answer

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

Question 3

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

Accepted Answer

Expansion

Answer

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

Question 4

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

Accepted Answer

A potential recession in the near future

Answer

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

Question 5

The Consumer Price Index (CPI) primarily measures:

Accepted Answer

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

Answer

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

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