CFA Level I · CFA Level I Exam · Understanding Business Cycles
An analyst wants a series that confirms a turning point in the economy has already occurred. Which indicator type is most appropriate?
A lagging indicator is most appropriate. It changes direction after the economy has turned, so it confirms that a peak or trough has already occurred. Leading indicators only signal likely turns in advance, and coincident indicators move simultaneously with the cycle.
- ALagging indicatorCorrect
- BLeading indicator
- CCoincident indicator
Explanation
Lagging indicators, such as the average duration of unemployment or the change in unit labor costs, turn after the economy does and so confirm a turning point that has already happened. Leading indicators only forecast turns, and coincident indicators move with them.
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