An investment committee reviews macroeconomic data showing short-term Treasury yields rising above long-term yields alongside shifting economic metrics. Which of the following statements regarding economic indicators and business cycle signals are correct?
- Building permits for new residential housing and average common stock prices are classified as leading economic indicators because they tend to anticipate future economic activity.Cevap
- An inverted yield curve, where short-term interest rates exceed long-term interest rates, historically serves as a signal of an impending economic contraction.Cevap
- CThe prime rate charged by commercial banks and the average duration of unemployment serve as leading indicators that predict business cycle turning points.
- DFederal Reserve adjustments to reserve requirements and the discount rate represent key fiscal policy measures intended to manage business cycle phases.
Cevap
The correct statements are: (1) Building permits for new residential housing and average common stock prices are classified as leading economic indicators, and (2) An inverted yield curve, where short-term interest rates exceed long-term interest rates, historically serves as a signal of an impending economic contraction.
The statement identifying building permits and common stock prices as leading economic indicators is correct because both respond predictably in advance of general economic shifts. The statement identifying an inverted yield curve as a recessionary signal is also correct, as short-term rates rising above long-term rates indicates restrictive credit conditions preceding contractions.
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Classification of Economic Indicators and Yield Curve Signals
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