Examkin

Question

Difficulty: HardEconomic Indicators and Business Cycle Phases

During a strategic asset allocation meeting, a portfolio manager observes that nonagricultural payrolls and real personal income have flattened, signaling a potential shift in current economic activity. The manager seeks to evaluate metrics that reflect current economic performance to confirm the present phase of the business cycle. Which of the following metrics is classified as a coincident economic indicator?

  1. A
    Average duration of unemployment
  2. Index of Industrial ProductionAnswer
  3. C
    Manufacturers' new orders for consumer goods and materials
  4. D
    Ratio of consumer installment credit to personal income

Answer

The Index of Industrial Production is classified as a coincident economic indicator.
The Index of Industrial Production measures current physical output across manufacturing, mining, and utilities. Because it changes concurrently with overall economic activity and gross domestic product, it is classified as a coincident economic indicator.

Step-by-Step Solution

1
Identify the category of economic indicators requested by the scenario.
The question asks for a coincident indicator, which moves in direct tandem with aggregate economic activity.
Coincident indicators reflect current economic conditions and help confirm the present business cycle phase.
2
Classify each metric presented in the choices.
Average duration of unemployment (lagging), Index of Industrial Production (coincident), Manufacturers' new orders for consumer goods (leading), and Ratio of consumer installment credit to personal income (lagging).
Standard Conference Board macroeconomic benchmarks categorize economic metrics by their timing relative to business cycle turning points.
3
Select the option that matches the coincident indicator classification.
The Index of Industrial Production.
Along with nonagricultural payrolls, personal income less transfer payments, and manufacturing/trade sales, industrial production moves simultaneously with the overall business cycle.

Key Concept

Classification of Economic Indicators (Leading, Coincident, Lagging)
Rate this question

Topics

Economic Indicators and Business Cycle Phases

More questions from this topic