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

CFA Level 1 Question of the Week – Economics

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    • Matt_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.
    • Matt_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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