Series 7: Exercise

Exercise

Answer the following questions.

1. 1. The four stages of the business cycle are:
2. A. Expansion, contraction, recession, trough
3. B. Expansion, peak, contraction, trough
4. C. Expansion, peak, contraction, depression
5. D. Expansion, contraction, recession, depression
6. 2. Non-cyclical stocks are also known as:
7. A. Defense stocks
8. B. Coincident stocks
9. C. Defensive stocks
10. D. Indicator stocks
11. 3. Which of the following leading indicators does not indicate an expansion of the economy?
12. A. Growing business inventories
13. B. Increase in building permits
14. C. Decrease in unemployment claims
15. D. Widening liquidity spread
16. 4. Assuming these are all equally available and you have equal knowledge of each and its relationship to the economy, which of the following indicators would be the best predictor of future expansion in the economy?
17. A. Prime rate charged by banks
18. B. Employment cost index
19. C. Performance of the S&P 500
20. D. Producer Price Index
21. 5. Why are housing starts an important leading indicator?
22. I. Because construction projects take at least a few months, housing starts indicate optimism on the part of investors and consumers.
23. II. Construction projects have a ripple effect—new workers may be hired and materials must be purchased, boosting the economy.
24. III. Housing is the biggest industry within the GDP.
25. IV. The Fed may react by reducing interest rates to make money less expensive to businesses and potential homeowners.
26. A. I and IV
27. B. I and II
28. C. II and III
29. D. III and IV

Answers

1. 1. B. Expansion, peak, contraction, trough