Economics & Economic Indicators Flashcards

Quantitative easing (QE) is a monetary policy in which a central bank:

Answer: Purchases large quantities of securities to inject liquidity into the economy

Quantitative easing involves the central bank buying financial assets (typically government bonds) to increase the money supply and stimulate lending and investment when conventional tools are insufficient.

Which of the following best describes the concept of purchasing power parity (PPP)?

Answer: The theory that exchange rates between currencies should adjust so that identical goods cost the same in different countries

Purchasing power parity holds that in the long run, exchange rates should adjust until the same basket of goods costs the same amount in different countries when measured in a common currency.

An investment adviser notes that the economy is in the expansion phase of the business cycle. Which asset class has historically tended to perform best during this phase?

Answer: Equities (stocks)

Equities tend to perform best during economic expansions as corporate earnings grow, consumer spending increases, and investor confidence rises.

The current account of a country's balance of payments records:

Answer: Trade in goods and services, investment income, and current transfers

The current account records the flow of goods and services (trade balance), income from investments abroad, and unilateral transfers such as foreign aid.

A client is concerned about inflationary risk in their portfolio. Which of the following investments has historically provided the best hedge against unexpected inflation?

Answer: Treasury Inflation-Protected Securities (TIPS)

TIPS have principal values that are adjusted upward with CPI inflation, so both the principal and interest payments rise with inflation, providing a direct hedge.

Which of the following economic concepts describes the additional output generated by employing one more unit of a factor of production?

Answer: Marginal productivity

Marginal productivity measures the additional output produced by adding one more unit of an input (such as labor or capital), and is a key concept in understanding production efficiency.

When a country's central bank intervenes to weaken its own currency, which of the following outcomes would an investment adviser most likely expect?

Answer: Domestic goods become cheaper for foreign buyers, potentially boosting exports

A weaker domestic currency makes exported goods cheaper for foreign buyers in their own currencies, which can stimulate demand for exports and improve the trade balance.