Economic Indicators PBL

7/28/2019 Economic Indicators PBL

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National Health :Using Indicators to Measure

Economic Performance


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Economic Goals

Growth:

Increasing production ofgoods/services

High Employment: Resources arebeing used in production

Price Stability (low inflation):Prices arent rising/decreasing

rapidly


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Business Cycles

reoccurring periods of

expansion/contraction(recession) in economicactivity

Typically 2.5 years

Ranges from 1-10years from peak totrough


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Economic IndicatorsMeasure Goals &

Cycles

show economic performance e.g.


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Change before general economic activity

Predict direction economy is moving

e.g.

Money supply

New orders for consumer goods & materials

Contracts for orders for plant & equipment

New building permits for private housing units

Changes in business inventories

Common stock prices

Length of the average work week

Initial claims for unemployment insurance

Change in consumer debt

Leading Indicators


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Coincident Indicators

move at the same time as economic activity

#employees on nonagricultural payrolls

Personal income minus transfer payments

Manufacturing/trade sales volume

Civilian employment to population ratio

GDP

Industrial production


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Lagging Indicators

trail behind the economy

Wont show upturn even if economy is growing e.g. Consumer debt to personal income ratio

Average duration of unemployment

Manufacturing/trade inventories

Commercial loans

Short-term interest rates

Unemployment rate

% change in CPI


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Indicators & the Economy

Pro-cyclic:

move in same direction of general economic activity Economy doing well, indicator high/increasing e.g. GDP

Counter-cyclic:

move in opposite direction of general economic activity

Economy doing well, indicator low/decreasing e.g.unemployment rate


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Indicators & Economic Goals

Coincident indicators show current economic

performance & identify problem areas Leading indicators predict the economys future

performance


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Economic Growth

increase in value of goods/services produced by aneconomy

Limited by resources in the economy

% increase in real GDP

GDP (nominal):

dollar value of all final goods/services produced by resources incountry in certain period of time

tells the money value of goods/services in different years

Real Per Capita Income (GDP/population): measures acountrys standard of living


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Economic Growth inReal Terms

Real values adjust for differences in price levels acrossyears

Differences in nominal values could result from changes inprices

Nominal values dont specify whether change is from inflationor econ growth

Real values remove ambiguity

convert nominal values as if prices were the same in each year

differences in real values reflect differences in the amount ofgoods that income could buy in each year


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Nominal vs. Real

Nominal: an indicator measured over time with noadjustment for the dollars changing value (changes inprices)

Real: an indicator adjusted for the dollars changing value

if wages double we think we have lots more $ to spend, butif prices quadruple, we lose the ability to buy goods as theycost more

nominal value of wages doubled but the real valuehalved

To track changes in indicators over time, we must alwaysuse real values


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High Employment

High unemployment rates create high opportunity costs

of lost output Economic growth reduces unemployment (lagging

indicator)


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Price Stability(Low Inflation)

Inflation: the general rise in prices over time

Rapid price increases erode currency value

people unwilling to hold cash

monetary system breaks down as individuals beginbartering (trading goods for goods w/o using cash)

Inflation can erode purchasing power if prices rise bymore than income

Economic Indicators PBL

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