CFA Level I · CFA Level I Exam · Understanding Business Cycles
An analyst wants a business cycle indicator that typically turns down before the economy moves from expansion into contraction. Which type of indicator is the analyst most likely seeking?
The analyst is most likely seeking a leading indicator. Leading indicators turn before the overall economy changes direction, so they help anticipate peaks and troughs. Coincident indicators move with the cycle and lagging indicators turn afterward, so neither gives advance warning of a downturn.
- ALagging indicator
- BLeading indicatorCorrect
- CCoincident indicator
Explanation
Leading indicators change direction before the economy does, so they are used to anticipate turning points. Coincident indicators move with the cycle, and lagging indicators turn after the economy has already turned.
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