Economic Indicators
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Transcript of Economic Indicators
Economic Indicators
How do we know what direction the economy is going?
Economic Indicators
• Def: Trends in the economy which tell economists where the business cycle is going and where it has been.
• Can prepare for the future
Three Types of Indicators
• Leading Indicators (where the cycle is going)
• Coincident Indicators (where the cycle is now)
• Lagging Indicators (where the cycle has been)
Leading Indicators
• Def: economic activity that happens prior to (before) a change in the economic cycle
• Theses are predictors of where the economy is going next—Expansion or contraction
Leading Economic Indicators
Indicator • Average weekly initial
claims of unemployment
• Stock prices
Significance• Reflect layoffs and new
hires (more unemployment=contraction and less unem.=expansion)
• Reflect investors attitudes (rise=expansion, fall = contraction)
Indicator• Interest Rates
• Index of consumer confidence
Significance• Rates are lowered
recession coming, raised=expansion
• Reflects changes in consumer attitudes about the future
Coincident Indicators
• Def: Information that is used to measure economic change as it happens
1. Total industrial production2. Total industrial sales3. Personal income4. Number of employees on industrial payroll
Lagging Indicators
• Def: Economic activity that change after the business cycle expands or contracts
1. Interest rates banks charge on loans2. Amount of money owed
Recessions in U.S. History
• Please answer the following questions for each recession (6) in the readings:
• 1) Describe what happened• 2)What was the peak unemployment rate (%)• 3) Describe what the Real GDP was during that time • 4) The length and severity of the recession• 5) How did it end?• 6) Any other interesting facts
Unemployment
• 16+ in age, not institutionalized, temporarily laid off and looking for work.
• Unemployment Rate- The percentage of the labor force unemployed and actively looking for work.
• (Don’t count people not looking for work “hidden unemployment”)
Types of Unemployment
• Frictional Unemployment• Cyclical Unemployment• Seasonal Unemployment• Structural Unemployment
Frictional Unemployment
• Def: People who are between jobs or just entering the workforce.
• Ex: High School/College students, changing careers
• This is a normal kind of unemployment.
Cyclical Unemployment
• Def: Unemployment caused by changes in the business cycle during a contraction phase
• Business layoff workers and the rate of unemployment increases.
• This is a normal form of unemployment
Seasonal Unemployment
• Def: Unemployment caused by natural changes in weather/season.
• Ex Farmers, Darien Lake, landscapers, construction
• Will get jobs back when season changes • This is a normal form of unemployment
Structural Unemployment
• Def: Changes in the economy that makes certain workers obsolete. Their skills are no longer needed.
• Ex: Business owners move business to different country (Outsourcing) or robots replacing workers on assembly line.
• This is a bad form of unemployment= Workers will have a hard time finding a new job. They will need to be re-trained
Inflation
• Def: A general rise in prices due to a decrease in value of money.
• Ex 5 years ago a can of pop from a machine costs $1.00 and today $2.00.
• When inflation happens too quickly, it has dangerous effects on the economy. (lowers purchasing power)
Causes of Inflation
• Demand-Pull Inflation: Demand side- When the demand for products exceeds the
supply, prices rise. Too many dollars, too few goods. Happens as a result of expansion of the Business Cycle.
• Cost- Push Inflation: supply side- When scarcity causes the cost of production to
increase, prices rise. Ex: gas prices increase the cost of fuel for planes= ticket prices increase
Effects of Inflation
1. Price of goods rise2. Money buys less3. Standard of living declines 4. Fixed incomes-does not increase5. People who save money are hurt (if inflation
is higher than investment returns=losing money)
Market Basket and CPI
• Market Basket- A representation of commonly purchased goods and services, around 300( ex toothpaste/ car wash)
• Consumer Price Index-index used to measure price changes for a market basket of frequently used consumer items.
• Aggregate demand (AD) is the total demand for final goods and services in the economy at a given time and price level. It specifies the amounts of goods and services that will be purchased at all possible price levels
• Aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. It is the total amount of goods and services that firms are willing to sell at a given price level in an economy