Essay Title: 

Macroeconomics Problem set #1

April 3, 2016 | Author: | Posted in economics, mathematics and economics

ECONOMIC INDICATORS

Introduction

Economic Indicators is simply any economic statistic , such as the unemployment rate , GDP , or the inflation rate which indicate how well the economy is doing and how well the economy is going to do in the future . The investors use all the information at their disposal to make investment decisions . If a set of economic indicators suggest that the economy is going to do better or worse in the future , than they had previously expected , they may decide to change their investing strategy The economic indicators may be [banner_entry_middle]

Procyclic , Countercyclic or Acyclic . In most countries GDP figures are released quarterly while the unemployment rate is released monthly . Some economic indicators such as the Dow Jones Index are available immediately and change every minute ‘ – (Mike Moffatt 2007

On the basis of the timing the indicators may be

Leading Economic Indicators : which change before the economy changes Stock market returns are a leading indicator , as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession . Leading economic indicators are the most important type for the investors as they help predict what the economy will be like in the future

Lagged Economic Indicator : is one that does not change direction until a few quarters after the economy does . The unemployment rate is a lagged economic indicator as unemployment tends to increase for 2 or 3 quarters after the economy starts to improve

Coincident Economic Indicator : is one that simply moves at the same time the economy does . The Gross Domestic Product is a coincident indicator

Applying the above principles we can comment on the enclosed data on the countries United States and United Kingdom ‘ – (Mike Moffatt 2007

United States

Leading Economic Indicator

The Industrial production and consumer prices indicator shows the trend of the economy . This indicator is comparable for all the major industrialized countries of the world . This economic indicator when analysed over the past period indicates the movement of the economy towards industrialization of the country . Taking 1996 as the base year the US economy has progressed well till February 2006 , which means that the economy for the second quarter will be doing better than the first quarter . Since this indicator acts as a predicting tool , during February 2006 the indicator has reached 140 which imply that the country should have increased the industrial output during the second quarter of 2006

Similarly the indicator for October 2006 (138 .3 ) is much higher than that of September 2006 (137 .7 ) which implies that the US economy will be doing progressively better in the last quarter of 2006

Coincident Economic Indicator

Although the leading economic indicator was showing a declining trend through March 2006 to October 2006 , the coincident indicator is showing a progressive trend through out the period under consideration (November 2005 through October 2006 taking 1996 as the base year . This indicator denotes the development of the economy over the period , as… [banner_entry_footer]

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