Examkin

Question

Difficulty: MediumEconomic Indicators and Business Cycle Phases

During a macroeconomic review, a financial advisor evaluates several metrics shifting across business cycle phases: building permits for new residential housing, employees on nonagricultural payrolls, the average prime rate charged by banks, and commercial loans outstanding. Which of these metrics is classified as a leading economic indicator?

  1. Building permits for new residential housingAnswer
  2. B
    Employees on nonagricultural payrolls
  3. C
    The average prime rate charged by banks
  4. D
    Commercial and industrial loans outstanding

Answer

Building permits for new residential housing is classified as a leading economic indicator.
Building permits for new residential housing represent future construction projects and expenditures, making them a key leading indicator that predicts future economic momentum.

Step-by-Step Solution

1
Identify the definitions of leading, coincident, and lagging economic indicators.
Leading indicators change before the economy trends in a new direction; coincident indicators change simultaneously with aggregate activity; lagging indicators adjust after economic shifts occur.
Correct classification requires comparing the timing of each indicator relative to turning points in the business cycle.
2
Categorize each indicator listed in the stem.
Building permits anticipate future construction spending (leading). Nonagricultural payrolls measure real-time employment (coincident). The prime rate and outstanding commercial loans reflect past economic conditions and bank adjustments (lagging).
Building permits indicate planned future economic activity rather than current or historical activity.

Key Concept

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

Topics

Economic Indicators and Business Cycle Phases

More questions from this topic