Business Cycles and Economic Indicators Flashcards
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Which composite index published by The Conference Board is most widely used to forecast future economic activity over the next 3–6 months?
Answer: Leading Economic Index (LEI)
The Conference Board's Leading Economic Index (LEI) aggregates ten forward-looking indicators specifically designed to predict near-term economic direction.
A Purchasing Managers' Index (PMI) reading above 50 indicates:
Answer: Expansion in the manufacturing sector
A PMI above 50 signals that more purchasing managers reported improving than deteriorating conditions, indicating sector expansion.
Which of the following is classified as a lagging economic indicator?
Answer: Average prime lending rate charged by banks
The average prime lending rate is a lagging indicator because banks typically adjust rates after economic conditions have already changed.
The Consumer Price Index (CPI) is best described as a measure of:
Answer: Changes in prices paid by urban consumers for a representative basket of goods and services
The CPI tracks price changes experienced by urban consumers for a fixed basket of goods and services, serving as the primary measure of consumer-level inflation.
The yield curve is described as 'inverted' when:
Answer: Short-term interest rates exceed long-term interest rates
An inverted yield curve occurs when short-term yields are higher than long-term yields, which has historically been a reliable recession predictor.
Which statement best describes 'coincident indicators' in economic analysis?
Answer: Indicators that move in tandem with the overall economy in real time
Coincident indicators, such as employment levels and industrial production, move simultaneously with the broader economy and confirm current economic conditions.
Real GDP differs from nominal GDP primarily because real GDP:
Answer: Is adjusted for changes in the price level (inflation or deflation)
Real GDP removes the effect of price level changes by using constant base-year prices, allowing meaningful comparison of output across different time periods.