Unit 11 SIE Economic Indications

The most commonly referenced indicator of economic activity is

GDP. The most commonly referenced economic indicator that measures overall economic activity is gross domestic product. Gross national product is not covered with anywhere near the frequency of GDP. CPI is a measure of inflation, not activity. Dow is a company or a set of indices, but not a measure of economic activity.

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer determines inflation rate

An economic event where consumers experience an extreme increase in the cost of goods in a short period is

hyperinflation. This describes hyperinflation. This is most likely experienced in nations that have dramatically increased the money supply beyond what the economy can absorb.

lagging indicators

indicators that change after the economy has begun a new trend but serve as confirmation of the new trend It helps to analysts differentiate longterm trends from short-term reversals that can occur lagging examples: corporate profits average duration of unemployment labor cost per unit of output Ratio of investors to sales commercial and industrial loans outstanding Ratio of consumer installment credit to personal income

The consumer price index is a measure of

the change in prices. The consumer price index is a measure of the prices of goods. When compared over time, if the prices are increasing, the economy is experiencing inflation. If the prices are decreasing, the economy is experiencing deflation.

Gross National Product (GNP)

The total value of goods and services, including income received from abroad, produced by the residents of a country within a specific time period, usually one year.

Stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation) occurs when economy isn't growing, and there is a lack of consumer demand and business activity, but prices for goods keep going up

stagnation

a prolonged period of slow economic growth; usually accompanied by high unemployment

Deflation

A situation in which prices are declining happens during severe recessions when unemployment is on the rise

Hyperinflation

A very rapid rise in the price level; an extremely high rate of inflation. erodes purchasing power of currency; rare occurance

The economic indicator that reflects activity of U.S. entities without regard to where the activity takes place is

GNP. This is a description of gross national product. GDP measures activity within the U.S., regardless if it is domestic entity or not. CPI is the primary inflation measure. FUN is just a word. Do not pick something you do not recognize just because it is unfamiliar.

Which of the following is a lagging indicator?

Increase in the consumer loans to personal income ratio Changes in the ratio of consumer installment credit to personal income is a lagging indicator. Changes in industrial production and hours worked are coincident indicators. Changes in raw materials orders is a leading indicator.

Which of the following can encourage economic growth because gradually increasing prices tend to stimulate business investment?

Mild inflation Inflation is a general increase in prices. Mild inflation encourages economic growth because gradually increasing prices stimulate business investment. High inflation reduces a dollar's buying power, which hurts the economy.

Economics

The study of how people seek to satisfy their needs and wants by making choices; supply and demand

Consumer Price Index

an index of the cost of all goods and services to a typical consumer; measures rate of increase or decrease in a broad range of consumer prices such as: food housing transportation medical care clothing which is computed each month

All the following are coincident indicators except: changes in durable goods inventories. trade sales. personal income. retail employment.

changes in durable goods inventories. Changes in durable goods inventories (whether an increase or decrease) is a leading economic indicator. Trade sales, retail employment, and personal income are all coincident indicators.

The monthly unemployment figure is considered a

coincident indicator. Unemployment is a coincident indicator. There is no dragging indicator.

All of these are leading economic indicators except

duration of unemployment. Duration of unemployment (i.e., how long unemployed people stay unemployed) is a lagging indicator. All of the others tend to change direction before the economy changes direction.

coincident indicators

economic indicators that usually change at the same time as changes in overall business activity coincident indicators: number of hours worked employment levels nonagricultural employment personal income industrial production manufacturing and trade sales GDP

When consumer prices are increasing at a steady but reasonable rate this is considered a healthy level of

inflation. Some level of inflation is considered inevitable in a healthy economy. If inflation becomes extreme, and is out of line with economic growth, it becomes a concern.

leading indicators

key economic variables that economists use to predict a new phase of a business cycle indicators examples: Money supply building permits average weekly initial claims for state unemployment compensation Average work week in manufacturing new orders for consumer goods machine tool orders changes in inventories of durable goods changes in sensitive materials prices stock prices changes in business and consumer borrowing

An economic indicator that tends to change direction following a change in the direction of GDP is a

lagging indicator. Lagging indicators tend to change direction after a change in the overall economy. GDP is the most common indicator for economic activity. When you have studied for eight hours straight and can not keep your eyes open; that is a flagging indicator.

An analyst is trying to determine upcoming economic activity to better determine her recommended investment strategy. She would be most interested in

leading indicators. When someone wants to know what future economic activity may be, she would be most interested in leading indicators. These indicators move in advance of economic activity. Coincident indicators move along with economic activity, and lagging indicators follow economic activity. There is no such thing as a coterminous indicator.

All the following are lagging indicators except

personal income. Personal income is a coincident indicator. Corporate profits, labor cost per unit of output, and outstanding commercial loans are lagging indicators.

Economic reports show that there is a general rise in prices for consumer goods and a high unemployment rate occurring simultaneously. This combination can best be described as

stagflation' Stagflation is the term used to describe the unusual combination of inflation (a rise in prices) and high unemployment (stagnation). This generally occurs when the economy isn't growing (there is a lack of consumer demand and business activity), yet prices for goods are still rising.

Increasing cost of goods and services and high unemployment are characteristics of

stagflation. Stagflation is the rare occurrence where the economy is contracting and income is dropping but prices are still rising.

The nation is experiencing a rapid increase in the cost of living, but wages are not keeping pace with the increase in cost. The nation is experiencing

stagflation. When prices are increasing but the economy is not growing, it is stagflation.

An extended period of little or no growth in GDP, wages, and prices is a period of

stagnation. An extended period of little or no growth period is normally referred to as stagnation. Inflation simply refers to rising prices and normally accompanies an expanding economy. Stagflation occurs when prices are rising but the economy is not expanding. Indignation is an emotional state and has nothing to do with the topic.

The most common way of measuring purchasing power risk is

the CPI. The Consumer Price Index measures the increase or decrease in consumer prices. GDP and GNP are both measures of economic activity. DND is a fictional acronym, which has nothing to do with this test. Do not pick things you do not recognize just because it is unfamiliar to you.

The measure of the inflation rate is

the Consumer Price Index. Inflation is an increase in prices over time. The consumer price index measures the price of a basket of goods. When comparing the value of this basket of goods, we can identify whether there's inflation or deflation occurring.

Inflation

A general and progressive increase in prices mild inflation=can encourage economic growth high inflation=reduces a dollar's buying power; hurts the economy

Gross Domestic Product (GDP)

A nations annual economic output all the goods and services produced within the nation US GDP=personal consumption, government spending, gross private investment, foreign investment, and net exports

Economic growth has slowed to a halt with little consumer demand, but prices for goods and services are still rising. This is known as economic

stagflation. When prices for goods and services are rising (inflation) during times when the economy isn't growing (stagnation), the economy is known to be in a period of stagflation.