Economics & Economic Indicators Flashcards

Which of the following is considered a leading economic indicator?

Answer: Building permits

Building permits are a leading indicator because they signal future construction activity and economic expansion before it occurs.

When the Federal Reserve raises the federal funds rate, what is the typical effect on bond prices?

Answer: Bond prices fall as existing bond yields become less competitive

When interest rates rise, newly issued bonds offer higher yields, making existing lower-yield bonds less attractive, so their prices fall to compensate.

GDP measures the total value of goods and services produced in a country. Which component typically represents the largest share of U.S. GDP?

Answer: Consumer spending

Consumer spending (personal consumption expenditures) accounts for approximately 70% of U.S. GDP, making it the largest component.

An investment adviser is explaining the yield curve to a client. A normal (upward-sloping) yield curve typically indicates:

Answer: Longer-term bonds carry higher yields than short-term bonds

A normal yield curve slopes upward because investors demand higher yields for longer-term bonds to compensate for greater duration risk and uncertainty.

Which monetary policy tool does the Federal Reserve use most frequently to implement its policy decisions?

Answer: Open market operations

Open market operations—buying and selling U.S. Treasury securities—are the Fed's primary and most frequently used tool for influencing the money supply and interest rates.

The Consumer Price Index (CPI) is best described as a measure of:

Answer: Changes in prices paid by urban consumers for a basket of goods and services

The CPI tracks changes in the prices urban consumers pay for a representative basket of goods and services, serving as the primary measure of inflation.

During a period of stagflation, an investment adviser would expect to see:

Answer: High inflation occurring simultaneously with high unemployment and slow growth

Stagflation is the simultaneous occurrence of high inflation, high unemployment, and stagnant economic growth, which occurred notably in the U.S. during the 1970s.