IAR Economics & Economic Indicators 2

Question 1

Which of the following best describes the concept of the money multiplier in banking?

Accepted Answer

The process by which initial deposits create a larger increase in the total money supply through lending

Answer

The rate at which the Fed increases the money supply each year

Answer

The ratio of currency in circulation to total bank deposits

Answer

The interest earned on deposits compounded over multiple periods

Question 2

An inverted yield curve (where short-term rates exceed long-term rates) has historically been associated with:

Accepted Answer

An impending economic recession

Answer

A period of rapid economic expansion

Answer

Rising stock market valuations

Answer

Decreasing inflationary pressures

Question 3

Which of the following is an example of fiscal policy?

Accepted Answer

Congress passing a tax cut to stimulate economic growth

Answer

The Federal Reserve lowering the federal funds rate target

Answer

The Fed purchasing Treasury securities through open market operations

Answer

The Treasury Department issuing new currency

Question 4

When comparing real GDP growth to nominal GDP growth, which statement is most accurate?

Accepted Answer

Real GDP adjusts for inflation, making it a better measure of actual economic output growth

Answer

Nominal GDP adjusts for inflation while real GDP does not

Answer

Both measures are identical when inflation equals zero percent

Answer

Real GDP always grows faster than nominal GDP

Question 5

A client asks about the difference between cyclical and defensive stocks during an economic downturn. Which response is most accurate?

Accepted Answer

Defensive stocks tend to maintain performance during recessions; cyclical stocks typically underperform

Answer

Cyclical stocks perform well in recessions; defensive stocks suffer during contractions

Answer

Both cyclical and defensive stocks decline equally during economic contractions

Answer

Cyclical stocks include utilities and consumer staples; defensive stocks include airlines and retailers

Question 6

The Phillips Curve describes the historical relationship between:

Accepted Answer

Inflation and unemployment rates

Answer

Interest rates and bond prices

Answer

GDP growth and stock market returns

Answer

Money supply growth and currency value

Question 7

Which economic indicator would be most useful for an investment adviser trying to assess the current state of the U.S. labor market?

Accepted Answer

The non-farm payroll report

Answer

The Producer Price Index (PPI)

Answer

The trade deficit figure

Answer

The federal funds effective rate