IAR Economics & Economic Indicators

Question 1

Which of the following is considered a leading economic indicator?

Accepted Answer

Building permits

Answer

Unemployment rate

Answer

Average duration of unemployment

Answer

Prime interest rate charged by banks

Question 2

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

Accepted Answer

Bond prices fall as existing bond yields become less competitive

Answer

Bond prices rise as yields become more attractive

Answer

Bond prices are unaffected since they are set at issuance

Answer

Bond prices rise due to increased demand from institutional investors

Question 3

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

Accepted Answer

Consumer spending

Answer

Government spending

Answer

Business investment

Answer

Net exports

Question 4

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

Accepted Answer

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

Answer

Investors expect economic contraction ahead

Answer

Short-term interest rates exceed long-term rates

Answer

The economy is currently in recession

Question 5

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

Accepted Answer

Open market operations

Answer

Adjusting reserve requirements

Answer

Changing the discount rate

Answer

Setting margin requirements

Question 6

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

Accepted Answer

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

Answer

Changes in prices paid by producers for raw materials

Answer

The total output of the U.S. economy adjusted for inflation

Answer

The rate at which the money supply is growing

Question 7

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

Accepted Answer

High inflation occurring simultaneously with high unemployment and slow growth

Answer

High economic growth combined with low unemployment

Answer

Declining inflation accompanied by strong GDP growth

Answer

A rapid expansion of money supply with falling interest rates