Presentation on theme: "Economic Indicators How do we know what direction the economy is going?"— Presentation transcript:
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=contracti on 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 production 2.Total industrial sales 3.Personal income 4.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 loans 2.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”)
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 rise 2.Money buys less 3.Standard of living declines 4.Fixed incomes-does not increase 5.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