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Economics
Understanding Business Cycles practice questions
Understanding Business Cycles is part of CFA Level I Economics. Economics questions focus on microeconomics, macroeconomic policy, international trade, currency markets, and market structure logic. Use this page to review the controlling ideas, then work through 21 questions with answer explanations and common traps.
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Economics
Understanding Business Cycles
An economist wants a single indicator whose turning points occur at approximately the same time as turning points in aggregate economic activity. The most appropriate choice is:
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Understanding Business Cycles
Demand for a manufacturer's products begins to weaken, but management is uncertain whether the slowdown will persist. Because hiring and training replacement workers later would be costly, the firm's most likely first response is to:
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Understanding Business Cycles
An economy enters a contraction, household incomes fall, and consumer credit tightens. Relative to its pre-recession level, spending in which category is most likely to decline by the largest percentage?
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Understanding Business Cycles
Economist Amara Okafor observes the following late in a recession: final sales have stabilized and begun rising modestly, business inventories are still falling, the aggregate inventory-to-sales ratio has dropped below its long-run average, and corporate credit spreads have begun to narrow. Okafor's most appropriate near-term inference is that:
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Understanding Business Cycles
An economy has just moved from a negative output gap to a small positive output gap. Real GDP growth is above its long-term trend, unemployment is falling, and capacity utilization is rising. The business cycle phase is most likely:
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Understanding Business Cycles
Real GDP remains above potential, but growth has slowed below potential growth. Supplier delivery times are shortening, inventories are rising, and new orders are weakening. The phase is best described as:
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Understanding Business Cycles
Real GDP increases by 1.0% over the year while potential GDP increases by 2.5%. Which description is most accurate?
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Understanding Business Cycles
A credit cycle is best described as fluctuations in the:
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Understanding Business Cycles
Equity prices and building permits have declined for three months. Industrial production and payroll employment remain stable, and the unemployment rate is still near a cyclical low. The most appropriate interpretation is that:
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Understanding Business Cycles
An economy is reporting rising new orders, improving building permits, and a still-high unemployment rate. The evidence most likely indicates:
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Understanding Business Cycles
A composite leading index rises only slightly, but its diffusion index increases from 40 to 65. The best interpretation is that:
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Understanding Business Cycles
A manufacturing purchasing managers' index rises from 48 to 52. This change most likely signals:
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Understanding Business Cycles
Credit spreads are unusually narrow, bank lending standards have eased for several quarters, household leverage is rising rapidly, and asset prices are accelerating. The most appropriate credit-cycle interpretation is that:
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Understanding Business Cycles
During the slowdown phase, actual output is most likely:
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Understanding Business Cycles
Mortgage applications and housing permits decline sharply after a rise in policy rates, while GDP and employment remain strong. The most likely conclusion is that:
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Understanding Business Cycles
A rise in the inventory-sales ratio to unusually high levels is most likely interpreted as a sign of:
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Understanding Business Cycles
Late in an expansion, capacity utilization reaches a cycle high, overtime hours rise, and firms report increasing difficulty hiring skilled labor. The most likely macroeconomic implication is:
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Understanding Business Cycles
A sector with earnings that are relatively stable across the business cycle is best described as:
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Understanding Business Cycles
An analyst states: 'A narrowing positive output gap, rising capacity utilization that has stopped increasing, and higher short-term policy rates most likely indicate the economy is in recovery.' The analyst's statement is least accurate because those indicators point more closely to:
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Understanding Business Cycles
A country has the following indicators: housing permits have fallen for six months, unemployment remains low, wage growth is high, and corporate profit margins are narrowing. The economy is most likely in:
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Understanding Business Cycles
The most appropriate interpretation of a strong credit-cycle peak is that it:
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