Economics for Investment Analysis Flashcards
6 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Economics for Investment Analysis flashcards as text
An inverted yield curve (long-term rates below short-term rates) is MOST commonly interpreted as:
Answer: A recessionary signal, as the market expects future short-term rates to fall
An inverted yield curve typically signals that markets expect economic slowdown or recession ahead, anticipating future rate cuts that will bring short-term rates down.
The Taylor Rule is used by central banks to:
Answer: Determine an appropriate target for the policy interest rate based on inflation and output gaps
The Taylor Rule provides a formula for setting the policy rate based on the neutral rate, the inflation gap (actual minus target), and the output gap (actual vs. potential GDP).
In international economics, a current account surplus means that a country is:
Answer: A net exporter of goods and services; receiving more from abroad than it sends
A current account surplus means exports of goods, services, income, and transfers exceed imports; the country is a net creditor to the rest of the world.
Which of the following BEST describes the concept of potential GDP?
Answer: The level of output an economy can sustainably produce at full employment with stable inflation
Potential GDP is the sustainable output level when all resources (labor, capital) are fully and efficiently employed without generating inflationary pressures.
In the aggregate demand-aggregate supply (AD-AS) model, a negative supply shock (e.g., rising oil prices) will MOST likely result in:
Answer: Lower output and higher inflation (stagflation) in the short run
A negative supply shock shifts the short-run aggregate supply curve left, raising the price level (inflation) and reducing real output (recessionary gap) simultaneously — stagflation.
The Gini coefficient measures:
Answer: Income inequality within a country, ranging from 0 (perfect equality) to 1 (maximum inequality)
The Gini coefficient quantifies income distribution inequality; 0 represents perfect equality (everyone has the same income), while 1 represents maximum inequality (one person has all income).