Ch#1 Understanding Economic Indicators

Question 1

How is the market reaction to a economic news report determined?

Answer 1

1 The Market Consensus Report
2 Data revisions in Previous Periods
3 Importance of Indicator to Policy Maker

Question 2

What are Fixed-Income markets concerned with?

Answer 2

1 Pace of Economic Growth

2 Inflation

Question 3

What is the Foreign Exchange concerned with?

Answer 3

1 Pace of Economic Growth
2 Inflation
3 Foreign Trade Imbalances

Question 4

What are Stocks concerned with?

Answer 4

1 Pace of Economic Growth
2 Earnings
3 Asset Allocation Implications from Changes in Interest Rats squeak

Question 5

Business Cycle

Answer 5

How Growth takes place

Question 6

How are Recessions triggered?

Answer 6

When imbalances in the cost-price-profit relationship occur, which often are caused by a shock or cumulative excess in the economy

Question 7

How are Recoveries triggered?

Answer 7

Phases of the cycle delineated (describe) from the economy’s trough (or low point) until the economy recaptures its lost output

Question 8

How are Expansions triggered?

Answer 8

Cyclical phases marked by when the economy expands beyond its prior cyclical high.

Question 9

Whats a Growth Cycle?

Answer 9

Expansions consisting of periods of accelerating and decelerating growth, also popularly known as “Mini-Cycles”, or, “Growth Rate Cycles”.

Question 10

If the change in an economic indicator is consistent with below average gains for expansion, then?

Answer 10

the economy is in a growth slowdown

Question 11

Important characteristic of growth slowdown

Answer 11

In an expansion, it is the tendency for the pace of inflation to moderate as well which will result in lower long-term interest rates.

E.g. During the postwar period, 82 percent of all growth cycle peaks were a precursor (before) to a business cycle recession

Question 12

What are three cyclical phases of an indicator

Answer 12

1 Recession (or, contraction)
2 Recovery of Transition period between the cyclical trough and when the economy returns to its previous peak
3 Expansion

Question 13

What was the key reason for the Government implementing Federal counter-cyclical fiscal policy?

Answer 13

For longer expansion than recessions during the postwar period.

However, in the 1990s the federal Government’s ability to implement counter-cyclical policy was severely weakened by its large federal budget deficits, which may ultimately shorten future expansions.

Question 14

How are economic news report released

Answer 14

President receives the news first through the chair of the Council of Economic Advisers (CEA), whomstd then advises the Federal Reserve Board of Governors