CFA Level I · CFA Level I Exam · Understanding Business Cycles
An analyst observes that the inventory-to-sales ratio has risen sharply while retail sales growth has slowed. This pattern is most likely consistent with:
The pattern most likely reflects an unplanned inventory build. Sales slowed while stocks piled up, so firms will cut orders and production to bring inventories back to desired levels, which amplifies the slowdown in economic activity.
- Aan unplanned inventory build that will lead firms to cut productionCorrect
- Ba recovery in which firms are restocking for stronger demand
- Ca peak of resource shortages in which firms cannot find goods
Explanation
Slowing sales with rising inventories means stocks are above desired levels. Firms will reduce orders and production to correct this, which deepens a slowdown. Restocking in a recovery shows inventory-to-sales falling first, then rising with strong sales.
Did you get it right without looking?
One question tells you little. A timed set on Understanding Business Cycles shows your real accuracy, how long you take and where you lose marks.
More Understanding Business Cycles questions
- An analyst observes that a widely used leading indicator index has declined for several months, yet the economy then avoids a recession. Thi…
- Which of the following is most likely a coincident indicator of the business cycle?
- Which of the following best describes a contraction in the business cycle?
- An economist observes that the unemployment duration average and the ratio of consumer credit to personal income are both rising sharply, wh…
- A consumer price index basket cost 400 in the base year. The current cost of the same fixed basket is 436, and a year ago it cost 418. The i…
- An economist argues that business cycles arise mainly because firms and households react to random changes in technology, and that output fl…