kim226

Which of the following factors would least likely result in demand-pull inflation? An increase in:

A) exports.

B) the quantity of money.

C) energy prices.

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Demand-pull inflation can result from any factor that increases aggregate demand, including increases in the money supply, increases in exports, and increases in government purchases. Increases in the prices of productive inputs would result in cost-push inflation as aggregate supply decreases.

kim226

Which of the following statements is most accurate? Cost-push inflation:

A) often occurs because of an increase in short-run aggregate supply.

B) results from excess short-run aggregate demand.

C) typically results from a significant price increase in a production input.

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Cost-push inflation typically results from a significant price increase in a production input that causes a decrease in short-run aggregate supply.

kim226

The inventory-to-sales ratio for manufacturing and trade is classified as a:

A) leading indicator.

B) lagging indicator.

C) coincident indicator.

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The inventory-to-sales ratio for manufacturing and trade is considered a lagging indicator because it peaks after the economy does, even though it is sometimes used in forecasting economic activity.

kim226

Average weekly initial claims for unemployment insurance are classified as a:

A) lagging indicator.

B) coincident indicator.

C) leading indicator.

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Initial claims for unemployment insurance are considered a leading indicator.

kim226

Manufacturing and trade sales are best described as a:

A) lagging indicator.

B) leading indicator.

C) coincident indicator.

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Manufacturing and trade sales are a coincident indicator that generally reflects the current phase of the business cycle.

kim226

Which of the following economic indicators is classified as a leading indicator for the United States economy?

A) Industrial production.

B) Index of consumer expectations.

C) Average duration of unemployment.

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Consumer expectations are a leading indicator. Industrial production is a coincident indicator. Average duration of unemployment is a lagging indicator.

kim226

At a recent board meeting of Pembroke Financial Inc., members of the board were discussing recent fiscal and monetary policy changes in the U.S. It became a heated discussion when each member expressed their opinions on what will be happening to long-run aggregate supply (LAS), aggregate demand, and the overall economy as a result of policy shifts. Joe Frankel and Martin Bentz, two vocal members of the board, made the following statements during the meeting:
Frankel: LAS can be thought of as the potential GDP of the economy. Potential GDP is positively related to the quantity of labor in the economy and the technology level of the economy, but is inversely related to the quantity of capital in the economy. So, potential GDP will rise if the quantity of labor increases, the level of technology increases, or the quantity of capital decreases.
Bentz: The level of real output on the LAS curve is the economy’s level of production when it is operating at zero unemployment. A zero unemployment rate is referred to as full employment.
With respect to these statements:

A) only Bentz is incorrect.

B) only Frankel is incorrect.

C) both are incorrect.

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LAS can be thought of as the potential real output of the economy. The potential real output of an economy is positively related to: the quantity of labor in the economy; the quantity of capital (productive resources) in the economy, and the technology that the economy possesses.
The level of real output (real GDP) on the LAS curve is the economy’s level of production when the economy is operating at full employment. However, full employment does not mean zero unemployment. There will always be some unemployment. Therefore, there is a natural rate of unemployment corresponding to the level of real GDP along the LAS curve, and that level is referred to as full employment GDP.

kim226

The most recent economic indicators show rising stock prices, an increase in average weekly hours in manufacturing, and lengthening periods of unemployment. Which phase of the business cycle is most consistent with these changes?

A) Expansion.

B) Peak.

C) Contraction.

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Increases in stock prices and average hours predict expansion. The fact that unemployment is still lengthening suggests the economy has been in recession since unemployment is a lagging indicator, but does not preclude the beginnings of an expansion.

kim226

The spread between the yield on 10-year government bonds and the overnight bank lending rate has decreased from 300 basis points to 200 basis points. As an economic indicator, this most likely suggests that the business cycle:

A) has passed a trough.

B) has entered a contraction.

C) is approaching a peak.

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The slope of the yield curve, as measured by the spread between long-term and short-term interest rates, is considered a leading indicator of the business cycle. A decline in the yield spread is consistent with expectations that an expansion is near its peak.

kim226

An analyst obtains the following monthly economic data (at annual rates, except stock prices and duration of unemployment):

	March	February	January
Stock prices	+4%	+8%	−6%
Average duration of employment	45 weeks	42 weeks	40 weeks
M2 money supply	+7%	+8%	+3%
Industrial production	+1%	−3%	−6%
Commercial & industrial loans	−8%	−4%	−6%

These indicators are most consistent with economic activity that is currently:

A) at a peak.

B) in a contraction.

C) at a trough.

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The stock market and M2 are both leading indicators, suggesting that a recovery is coming. Duration of unemployment and C&I loans are both lagging indicators, suggesting that a recession has occurred. Industrial production is a coincident indicator and the fact that it has stopped declining suggests that the economy has reached a trough and is beginning the recovery.