CFA CFA Level 1 CFA Level 1 Question of the Week – Economics

CFA Level 1 Question of the Week – Economics

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    • Avatar of Matt_AnalystPrepMatt_AnalystPrep
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        In 2007, housing prices dropped almost overnight as a result of what some economists referred to as a correction from prices that formed in a market bubble. Financial assets also dropped in value. The subsequent changes in GDP could be best explained as:

        • A. a movement along the aggregate demand (AD) curve to a lower price level
          and less output.
        • B. a shift in the aggregate supply (AS) curve, such that supply decreased
          at all price levels.
        • C. a leftward shift in the aggregate demand (AD) curve as a consequence of
          reduced wealth.
      • Avatar of Matt_AnalystPrepMatt_AnalystPrep
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          The answer is C.

          Investors who already owned homes saw
          the equity in their homes and their
          retirement investment portfolios shrink. Therefore, simply put, they were less
          willing to make purchases.  This
          evaporation of consumption spending was a driver of the recession that
          followed. 

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