CFA Economic Analysis & Indicators 2

Question 1

Which of the following best describes the relationship between the output gap and inflation according to the Phillips Curve?

Accepted Answer

A positive output gap (actual > potential) tends to push inflation higher

Answer

When actual output exceeds potential (positive output gap), resource constraints and demand pressure tend to push inflation upward.

Question 2

The Conference Board's Leading Economic Index (LEI) for the U.S. includes which of the following components?

Accepted Answer

Average weekly manufacturing hours and building permits

Answer

The LEI includes forward-looking components such as average weekly manufacturing hours, building permits, and stock prices that signal future economic direction.

Question 3

A country reports a current account deficit of $50 billion. According to the balance of payments identity, what must be true?

Accepted Answer

The financial and capital account must show a net surplus of approximately $50 billion

Answer

The balance of payments must sum to zero, so a current account deficit must be offset by a financial/capital account surplus of equal magnitude.

Question 4

In the context of economic indicators, the term 'diffusion index' is most closely associated with:

Accepted Answer

ISM manufacturing and services surveys that measure the breadth of expansion or contraction

Answer

Diffusion indexes, like the ISM PMI, measure the percentage of respondents reporting expansion minus those reporting contraction, indicating breadth of economic change.

Question 5

Which economic concept explains why a 1% increase in consumer income might lead to a greater-than-1% increase in GDP?

Accepted Answer

The Keynesian multiplier effect

Answer

The Keynesian multiplier holds that an initial injection of spending circulates through the economy, creating a total GDP increase larger than the original stimulus.

CFA Practice Test

CFA Practice Test

CFA Economic Analysis & Indicators 2