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CFP® | FP511 > LO 7.1.3: Determine the business cycle phase on the basis of an economic activity or statistical trend. > Flashcards

LO 7.1.3: Determine the business cycle phase on the basis of an economic activity or statistical trend. Flashcards

1
Q

What is the business cycle?

A

Reflects movements in economic activity and illustrates concepts of supply and demand.

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2
Q

What is the purpose of analyzing characteristics of past economic conditions?

A

Since the economy is usually in either an expansion or contraction phase, economists can pinpoint when the expansion has reached its peak (top or maximum), and when the contraction phase has reached its trough (bottom).

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3
Q

What happens to consumer demand during periods of economic expansion?

A

Rising

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4
Q

What happens to consumer demand during periods of economic contraction?

A

Falling

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5
Q

What happens to income during periods of economic expansion?

A

Rising

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6
Q

What happens to income during periods of economic contraction?

A

Falling

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7
Q

What happens to sentiment during periods of economic expansion?

A

Rising

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8
Q

What happens to sentiment during periods of economic contraction?

A

Falling

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9
Q

What happens to consumer credit during periods of economic expansion?

A

Rising

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10
Q

What happens to consumer credit during periods of economic contraction?

A

Falling

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11
Q

What happens to retail sales during periods of economic expansion?

A

Rising

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12
Q

What happens to retail sales during periods of economic contraction?

A

Falling

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13
Q

What happens to auto sales during periods of economic expansion?

A

Rising

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14
Q

What happens to auto sales during periods of economic contraction?

A

Falling

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15
Q

What happens to mortgage debt during periods of economic expansion?

A

Rising

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16
Q

What happens to mortgage debt during periods of economic contraction?

A

Falling

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17
Q

What happens to housing starts during periods of economic expansion?

A

Rising

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18
Q

What happens to housing starts during periods of economic contraction?

A

Falling

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19
Q

What happens to inflation during periods of economic expansion?

A

Falling

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20
Q

What happens to inflation during periods of economic contraction?

A

Rising

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21
Q

What happens to unemployment during periods of economic expansion?

22
Q

What happens to unemployment during periods of economic contraction?

23
Q

What happens to CPI during periods of economic expansion?

24
Q

What happens to CPI during periods of economic contraction?

25
Q

What happens to GDP during periods of economic peak?

26
Q

What happens to GDP during periods of economic trough?

27
Q

What happens to Producer Price Index during periods of economic peak?

28
Q

What happens to Producer Price Index during periods of economic trough?

29
Q

What happens to inflation during periods of economic peak?

30
Q

What happens to inflation during periods of economic trough?

31
Q

What happens to output during periods of economic peak?

32
Q

What happens to output during periods of economic trough?

33
Q

What happens to industrial production during periods of economic peak?

34
Q

What happens to industrial production during periods of economic trough?

35
Q

What happens to capacity utilization during periods of economic peak?

36
Q

What happens to capacity utilization during periods of economic trough?

37
Q

What happens to labor productivity during periods of economic peak?

38
Q

What happens to labor productivity during periods of economic trough?

39
Q

What happens to efficiency during periods of economic peak?

40
Q

What happens to efficiency during periods of economic trough?

41
Q

What is a recession?

A

A recession occurs when the GDP has experienced a decrease in real terms for two consecutive quarters or a minimum of six months from a baseline of zero.

42
Q

What are characteristics of a recession?

A
  1. High unemployment,
  2. Reduction in manufacturing,
  3. Increases in inventory of durable goods,
  4. A decline in GDP,
  5. Contractions in corporate profits, and
  6. Lower consumer spending.
43
Q

What is a depression?

A

A depression is when the GDP has experienced a decrease in real terms for six consecutive quarters or a minimum of 18 months from a baseline of zero.

44
Q

What are the 3 types of economic indicators?

A
  • Leading;
  • Coincident;
  • Lagging or confirming.
45
Q

Leading indicator

A

Tend to precede actual economic change.

46
Q

What are examples of leading indicators?

A
  • housing starts,
  • new claims for unemployment,
  • bond yields (spread between 10-year T-bonds and fed funds),
  • indexes of stock prices,
  • orders for durable goods, and
  • changes in investor sentiment.
47
Q

Coincident indicators

A
  • Occur simultaneously during the business cycle

* Confirm the stage that the economy is currently experiencing

48
Q

What are examples of coincident indicators?

A
  • Industrial production,
  • Level of personal income, and
  • Amount of corporate profits
49
Q

Lagging (or confirming) indicators

A

Usually change after the economy has passed through one business cycle and allow confirmation of a previous economic environment

50
Q

What are examples of lagging (or confirming) indicators?

A
  • Prime interest rates,
  • Changes in CPI, particularly for services,
  • Amount of business and consumer loans outstanding, and
  • Average duration of unemployment.

CFP® | FP511 (61 decks)

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