Economic Analysis & Indicators Flashcards
7 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 7 Economic Analysis & Indicators flashcards as text
In the context of business cycle analysis, which of the following sectors is typically considered MOST cyclical?
Answer: Capital goods manufacturers and consumer discretionary firms
Capital goods and consumer discretionary spending are highly sensitive to economic conditions because businesses and consumers defer these purchases during downturns.
Purchasing Power Parity (PPP) theory predicts that in the long run, exchange rates will adjust so that:
Answer: Identical goods cost the same across countries when prices are expressed in a common currency
PPP states that arbitrage will eliminate price differences for identical goods across borders by driving exchange rate adjustments.
Which economic indicator is specifically designed to measure inflation at the producer level before it reaches consumers?
Answer: Producer Price Index (PPI)
The PPI measures price changes received by domestic producers for their output, providing an early signal of future consumer price pressures.
Monetarist economists, following Milton Friedman, argue that the primary cause of the Great Depression was:
Answer: A severe contraction in the money supply allowed by the Federal Reserve
Friedman and Schwartz's 'A Monetary History of the United States' argued the Fed allowed the money supply to contract by one-third, turning a recession into a depression.
Okun's Law describes an empirical relationship between:
Answer: Changes in unemployment and changes in real GDP growth
Okun's Law states that for every 1 percentage point rise in unemployment above the natural rate, GDP falls roughly 2 percentage points below potential.
In fixed income analysis, the 'break-even inflation rate' derived from TIPS versus nominal Treasury yields represents:
Answer: The market's implied expectation of average inflation over the bond's remaining life
The TIPS break-even rate is the yield spread between nominal Treasuries and TIPS, reflecting the market's inflation expectation embedded in bond prices.
Which of the following is the best definition of the 'velocity of money' in the quantity theory of money (MV = PQ)?
Answer: The average number of times a unit of currency is used in transactions over a given period
Velocity (V) in the equation of exchange measures how frequently the average dollar is spent on goods and services in a given year.