IAR Economics & Economic Indicators

Question 1

Which of the following is considered a leading economic indicator?

Accepted Answer

Building permits

Answer

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

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

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

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

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

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

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

Question 5

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

Accepted Answer

Open market operations

Answer

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.

IAR - Investment Advisory Representative Certification Practice Test

IAR - Investment Advisory Representative Certification Practice Test

IAR Economics & Economic Indicators