Unit 8 Economic Concepts (6)

All of the following are leading indicators for economic growth EXCEPT A) orders for durable goods B) average weekly initial claims for state unemployment compensation C) average prime rate D) stock prices as measured by the S&P 500 index

C. The average prime rate is a lagging indicator. The duration of unemployment is also a lagging indicator, but the number of initial unemployment claims is a leading indicator. The S&P 500 index and orders for durable goods are leading economic indicators. U8LO3

When discussing employment and production, which of the following industries are typically more affected by a recession? Capital goods Consumer durable goods Consumer nondurable goods Services

D. Durable goods and capital goods are more affected by a recession than are nondurable goods and services. This is primarily because they are larger items, last for a longer period, and are somewhat discretionary. U8LO2

Which of the following would NOT be considered a defensive security? A) Food chain stock B) Tobacco stock C) Utility company stock D) Steel company stock

D. Steel is cyclical and is not considered defensive; defensive stocks are generally less affected by the business cycle. U8LO2

What generally happens to outstanding fixed-income securities when the rate of inflation slows? A) Short-term securities are affected the most. B) Yields go up. C) Coupon rates go up. D) Prices go up.

D. When the rate of inflation slows and is expected to remain stable, coupons on new issue bonds will often decline to offer lower yields. The prices of outstanding bonds will go up to adjust to the lower yields on bonds of similar quality. U8LO3

T or F The number of initial unemployment terms is a lagging indicator

False It is a leading indicator

T or F The average prime rate is a leading indicator?

False The average prime rate is a lagging indicator.

What is the Federal Funds Rate?

Loans between banks, usually on an overnight basis, are made at the federal funds rate. It is the most volatile of the money market rates. U8LO1

Name 2 Leading Economic Indicators

S&P 500 Index + Orders for Durable Goods

What is the discount rate?

The discount rate is the rate charged when banks borrow directly from the Federal Reserve. U8LO1

T or F The duration of unemployment is a lagging indicator?

True It is a lagging indicator.

Which of the following is considered the most accurate method of measuring GDP? A) Constant dollars B) As a function of GNP C) Actual dollars D) Eurodollars

A. Constant dollars are mathematically adjusted to remove the effects of inflation, so when economists compare the gross domestic product of one period with that of another, they measure economic activity rather than inflation. U8LO2

When a bank that is a member of the Federal Reserve System borrows from another member bank, the rate that is charged is known as A) the federal funds rate B) the call loan rate C) the discount rate D) the prime rate

A. Loans between banks, usually on an overnight basis, are made at the federal funds rate. It is the most volatile of the money market rates. The discount rate is the rate charged when banks borrow directly from the Federal Reserve. U8LO1