Transcript Economic Indicators PPT

Economic Indicators
Okay, I should pay attention to the business cycle,
but how do I know which direction it is going in?
Economics Joke:
• There are only two economists in the world who know
where the economy is going. And they disagree!
If you were an economist, this would be
hilarious! For the rest of us, not so funny.
But, it tells us one thing: economics is
unpredictable. We can only guess at what is
happening.
Economic Indicators
• Predicting the business cycle is tricky. Often the
economy does not do what economists expect. Looking
at lots of indicators give them a feel for what is going
on and an idea of how to prepare for the future.
• Def. Trends in the economy which tell economists
where the business cycle is going and where it has been.
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.
• These are predictors of where the economy is going
next: Expansion or contraction.
Leading Economic Indicators
•
Indicator
Average weekly initial
claims for
unemployment
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Stock Prices
Significance
Reflect layoffs and new hires
(more unemployment,
contraction. Less
unemployment, expansion)
Reflect Investor attitudes (rise
=expansion, fall= contraction)
Leading Economic Indicators (cont.)
•
Indicator
Interest Rates
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Index of consumer
confidence (a survey of
how people feel about
the economy)
Significance
Rates are lowered if a
recession is coming,
raised if expansion.
Reflects changes in
consumer attitudes
about the future.
Coincident Indicators
•
Def. Information that is used to measure
economic change as it happens.
1.
2.
3.
4.
Total industrial production
Total industrial sales
Personal Income
Number of employees on industrial payroll
Lagging Indicators
•
Def. Economic activity that change after the
business cycle expands or contracts.
1.
2.
Interest rates banks charge on loans
Amount of money owed
Unemployment
• Unemployment Rate: def. the percentage of the labor
force unemployed and actively looking for work.
(remember, we don’t count people not looking for
work, “hidden unemployment”)
• Use your internet to look up the most
recent unemployment rate.
Types of Unemployment
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•
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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 graduates, people changing
careers, etc.
• This is a normal kind of unemployment.
Cyclical Unemployment
• Def. Unemployment caused by changes in the
business cycle during a contraction phase.
• Businesses lay off workers and the unemployment
rate increases. These workers will find work when the
business cycle moves to an expansion phase. This is a
normal form of unemployment.
Seasonal Unemployment
• Def. Unemployment caused by natural changes in
weather/season.
• Ex. Farming, construction, Darien Lake workers, snow
plowers, landscapers.
• When the season changes, they will get their jobs
back. Another 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 the factory to another country
(outsourcing), robots replace assembly line workers.
• This is a bad form of unemployment. These workers have a
difficult time finding new jobs because their skills are not
needed. Need to be re-trained for the new job market
Inflation
• Def. A general rise in prices due to a decrease in the
value of money.
• Ex. 5 years ago, a can of soda from a machine cost $.75.
Today it is $1.00 or more.
• Inflation is natural and even necessary. But when
inflation increases too quickly, it has dangerous
effects on the economy. (i.e. people cannot afford to
purchase needs and wants)
Causes of Inflation
• Demand-Pull Inflation:
• When the demand for products exceeds the supply, prices rise.
Too many dollars, too few goods. This is a natural result of
expansion of the Business Cycle.
• Cost-Push Inflation:
• When scarcity causes the cost of production to increase, prices
rise. Ex. Gas prices increase the cost of fuel for airplanes, so
ticket prices increase
Effects of Inflation
1.
2.
3.
Price of goods rise (ex. Can of soda)
4.
People who save money are hurt (if inflation is
higher than investment returns, losing money!)
Money buys less
Standard of living declines (ex. More and more
households have two people working to make ends
meet)
Effects of Inflation cont.
• Inflation hits people with fixed incomes (people with
a set monthly income that will not increase) the
hardest.
• Ex. Retirees and disabled people. Their social security
checks, pensions, or investments are limited and do not
increase even when prices increase.
Gross Domestic Product (GDP)
• Def.—The total value of the goods and
services produced in a country in a given year
• Four main areas:
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Consumer goods and services
Business goods and services
Government goods and services
Goods and services sold to other countries
Standard of Living
• Def.—The amount of goods and services the
average citizen can buy
• Current GDP for the US: $16.77 trillion
National Debt
• Def.—The total amount of money a
government owes
• Budget deficit—when a government spends
more on programs than it collects in taxes
National Debt
• Use the internet to research the current National
debt for the US
• When is the last time the country was without debt?
• Who was the president during that time?
• Has the debt ever been higher than it is right now?