{"id":31991,"date":"2021-09-27T16:14:16","date_gmt":"2021-09-27T16:14:16","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=31991"},"modified":"2026-03-02T16:56:07","modified_gmt":"2026-03-02T16:56:07","slug":"economics","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/","title":{"rendered":"Activity Variation With Business Cycle"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Understanding Business Cycles (2025 Level I CFA\u00ae Exam \u2013 Economics \u2013 Module 4)\",\n  \"description\": \"This video lesson covers key concepts in economics, including the phases of the business cycle, credit cycles, resource and sector activity changes, and theories of business cycles. It also explains economic indicators, types of unemployment, and different inflation measures, highlighting their uses, limitations, and distinctions such as cost-push versus demand-pull inflation.\",\n  \"uploadDate\": \"2022-03-24T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/Zl_eRBczasU\/hqdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=Zl_eRBczasU\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/Zl_eRBczasU\",\n  \"duration\": \"PT34M08S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"What do imports generally respond to?\",\n    \"text\": \"In general, imports respond to which of the following?\\n\\nA. Level of exports.\\n\\nB. Domestic GDP growth rate.\\n\\nC. The domestic industrial policy.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is B. Imports reflect domestic demand for foreign goods and services and therefore tend to increase as domestic GDP growth rises. Exports, by contrast, are more closely linked to external business cycles rather than domestic economic growth.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/Zl_eRBczasU?si=9W509-44atqzjdt4\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<h2><strong>Business Activity<\/strong><\/h2>\n<p>Business cycle indicators such as inventories are crucial. Companies need to maintain an adequate supply of inventory to meet demand, but they do not want to tie up too much capital in inventory. In many industries, the inventory ratio to sales has thus trended toward a normal level in periods of sustained economic growth.<\/p>\n<p>The sales growth slows, and unsold inventories accumulate as an expansion reaches its peak. Inventory levels increase above their normal levels, as shown by the inventory-sales ratio.<\/p>\n<p>One of the causes of the subsequent economic recession is that firms reduce production in response to an unplanned increase in inventory. Whether inventory increases are planned or unplanned, they contribute to GDP statistics. If an analyst only considers GDP growth and not inventory sales ratio, he could see economic strength instead of economic weakness.<\/p>\n<p>When contractions are at their trough, the opposite happens. In response to lower sales demand, firms reduce production levels to adjust for lower demand in sales; however, once sales growth accelerates, inventories deplete more quickly. Thus, the inventory sale ratio is decreased below its normal value as a result. As firms increase output to meet the increased demand, the inventory sales ratio will increase to normal levels.<\/p>\n<a \n  href=\"https:\/\/analystprep.com\/free-trial\/\" \n  target=\"_blank\" \n  rel=\"noopener noreferrer\"\n  style=\"\n    display:block;\n    width:100%;\n    text-align:center;\n    padding:14px 20px;\n    border:2px solid #3b82f6;\n    border-radius:9999px;\n    color:#3b82f6;\n    font-weight:600;\n    text-decoration:none;\n    margin:24px 0;\n  \"\n>\n  Practice CFA Level I Economics\n<\/a>\n\n<h2><strong>Resource Use During an Expansion<\/strong><\/h2>\n<p>The low prices that characterise the recession and trough phases of the business cycle prompt consumers to buy more goods and services. This leads to an increase in aggregate demand. The business cycle then moves into the expansion stage. Here, the economy may experience shortages because demand is higher than supply. During this period, the riskiest assets, such as growth stocks, will experience high increments in prices.<\/p>\n<p>The expansion phase is then followed by the peak of the business cycle and subsequently, the contraction phase.<\/p>\n<h2><strong>Housing Sector<\/strong><\/h2>\n<p>There is a strong correlation between the housing sector and interest rates. This is because the construction and subsequent purchasing of homes depends on the mortgage rates at which the homebuyers can finance their mortgages. Therefore, when interest rate is low, consumers are encouraged to purchase more real estate.<\/p>\n<p>Apart from interest rates, the housing sector also closely follows the business cycle trends. This was evident in the financial crisis of 2008. When home prices are low compared to average income, the cost of owning a house reduces, and the demand rises.<\/p>\n<h2><strong>The External Trade Sector<\/strong><\/h2>\n<p>Imports increase as demand for foreign goods and services increases. Hence, imports are highly dependent on domestic cycles.<\/p>\n<p>However, exports also depend on external business cycles. When a country&#8217;s economy is booming, its currency strengthens in comparison to foreign currencies. This currency value appreciation makes exports expensive in comparison. This leads to reduced exports and thus reduced production output. This effect then subsequently depreciates the currency\u2019s power, thereby favouring exports.<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>In general, imports respond to:<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li>Level of exports.<\/li>\n<li>Domestic GDP growth rate.<\/li>\n<li>The domestic industrial policy.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>Imports show the domestic needs for imported goods and change with domestic growth.<\/p>\n<p>On the other hand, exports most likely depend on external business cycles.<\/p>\n<\/blockquote>\n<div class=\"notes_inv\"><hr>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/learning-sessions-curriculum-economics\/\"><em>Economics &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>\n<div style=\"background:#f3f4f6; padding:22px 18px; border-radius:14px; margin:30px 0; text-align:center;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\"\n     style=\"display:inline-flex; align-items:center; justify-content:center; padding:14px 24px; border-radius:999px; background:#1d4ed8; color:#ffffff; text-decoration:none; font-weight:700; font-size:17px; line-height:1;\">\n    Start Free Trial \u2192\n  <\/a>\n  <p style=\"\n    margin:0;\n    font-size:16px;\n    color:#374151;\n  \">\n    Master CFA Level I Economics with exam-style practice questions, quick drills, and step-by-step solutions.\n  <\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Business Activity Business cycle indicators such as inventories are crucial. Companies need to maintain an adequate supply of inventory to meet demand, but they do not want to tie up too much capital in inventory. In many industries, the inventory&#8230;<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"class_list":["post-31991","post","type-post","status-publish","format-standard","hentry","category-economics","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Core Economics Topics for CFA Level 1 | AnalystPrep<\/title>\n<meta name=\"description\" content=\"Review essential CFA Level 1 economics topics, including business cycles, demand and supply, and macroeconomic indicators. A key part of exam success.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Core Economics Topics for CFA Level 1 | AnalystPrep\" \/>\n<meta property=\"og:description\" content=\"Review essential CFA Level 1 economics topics, including business cycles, demand and supply, and macroeconomic indicators. A key part of exam success.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2021-09-27T16:14:16+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-02T16:56:07+00:00\" \/>\n<meta name=\"author\" content=\"Kosikos Tuitoek\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Kosikos Tuitoek\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/\"},\"author\":{\"name\":\"Kosikos Tuitoek\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/#\\\/schema\\\/person\\\/73df713e3b6e82ee139e1eff20cebe20\"},\"headline\":\"Activity Variation With Business Cycle\",\"datePublished\":\"2021-09-27T16:14:16+00:00\",\"dateModified\":\"2026-03-02T16:56:07+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/\"},\"wordCount\":543,\"articleSection\":[\"Economics\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/\",\"url\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/\",\"name\":\"Core Economics Topics for CFA Level 1 | AnalystPrep\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/#website\"},\"datePublished\":\"2021-09-27T16:14:16+00:00\",\"dateModified\":\"2026-03-02T16:56:07+00:00\",\"author\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/#\\\/schema\\\/person\\\/73df713e3b6e82ee139e1eff20cebe20\"},\"description\":\"Review essential CFA Level 1 economics topics, including business cycles, demand and supply, and macroeconomic indicators. A key part of exam success.\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/economics\\\/economics\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Activity Variation With Business Cycle\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/#website\",\"url\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/#\\\/schema\\\/person\\\/73df713e3b6e82ee139e1eff20cebe20\",\"name\":\"Kosikos Tuitoek\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g\",\"url\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g\",\"contentUrl\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g\",\"caption\":\"Kosikos Tuitoek\"},\"url\":\"https:\\\/\\\/analystprep.com\\\/cfa-level-1-exam\\\/author\\\/kosikos-tuitoek-enockanalystprep-com\\\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/Zl_eRBczasU\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"2049\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2021-09-27T16:14:16+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Core Economics Topics for CFA Level 1 | AnalystPrep","description":"Review essential CFA Level 1 economics topics, including business cycles, demand and supply, and macroeconomic indicators. A key part of exam success.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/","og_locale":"en_US","og_type":"article","og_title":"Core Economics Topics for CFA Level 1 | AnalystPrep","og_description":"Review essential CFA Level 1 economics topics, including business cycles, demand and supply, and macroeconomic indicators. A key part of exam success.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2021-09-27T16:14:16+00:00","article_modified_time":"2026-03-02T16:56:07+00:00","author":"Kosikos Tuitoek","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Kosikos Tuitoek","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/"},"author":{"name":"Kosikos Tuitoek","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20"},"headline":"Activity Variation With Business Cycle","datePublished":"2021-09-27T16:14:16+00:00","dateModified":"2026-03-02T16:56:07+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/"},"wordCount":543,"articleSection":["Economics"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/","name":"Core Economics Topics for CFA Level 1 | AnalystPrep","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2021-09-27T16:14:16+00:00","dateModified":"2026-03-02T16:56:07+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20"},"description":"Review essential CFA Level 1 economics topics, including business cycles, demand and supply, and macroeconomic indicators. A key part of exam success.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/economics\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Activity Variation With Business Cycle"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20","name":"Kosikos Tuitoek","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g","caption":"Kosikos Tuitoek"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/kosikos-tuitoek-enockanalystprep-com\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/Zl_eRBczasU","og_video_type":"text\/html","og_video_duration":"2049","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2021-09-27T16:14:16+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/31991","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=31991"}],"version-history":[{"count":9,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/31991\/revisions"}],"predecessor-version":[{"id":59319,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/31991\/revisions\/59319"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=31991"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=31991"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=31991"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}