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
A country with a persistent current account surplus and a pegged exchange rate is most likely experiencing:
Answer: Undervaluation of its currency relative to fundamental equilibrium
Persistent current account surpluses under a peg often indicate the currency is kept artificially weak, making exports cheap and imports expensive.
In the context of economic cycle analysis, 'capital deepening' refers to:
Answer: An increase in the amount of capital per worker in the economy
Capital deepening occurs when the capital-to-labor ratio rises, typically boosting labor productivity and supporting long-run economic growth.
Which scenario would most likely cause the M2 money supply to DECREASE?
Answer: Banks increase reserve requirements and reduce lending activity
Higher reserve requirements reduce the money multiplier, constraining banks' ability to create deposits through lending and contracting M2.
The concept of 'labor force participation rate' is important for economic analysis because:
Answer: It reveals changes in the pool of active workers that the unemployment rate alone may obscure
When discouraged workers exit the labor force, the unemployment rate can fall without genuine improvement, making LFPR critical for full labor market assessment.
According to the Fisher Effect, if the nominal interest rate is 7% and expected inflation is 3%, the approximate real interest rate is:
Answer: 4%
The Fisher approximation states that the real rate ≈ nominal rate − expected inflation, so 7% − 3% = 4%.
In the Mundell-Fleming model for an open economy with a fixed exchange rate and perfect capital mobility, fiscal policy is:
Answer: Highly effective because exchange rate stability prevents crowding out of net exports
Under a fixed exchange rate with perfect capital mobility, fiscal expansion attracts capital, the central bank must buy foreign currency to maintain the peg, expanding money supply and amplifying stimulus.
Which of the following best characterizes a 'supply shock' and its typical macroeconomic effect?
Answer: An unexpected change in production costs that shifts aggregate supply, causing inflation and output to move in opposite directions
Supply shocks (e.g., oil price spikes) shift the AS curve, creating stagflation (negative shock) or simultaneous disinflation and growth (positive shock).