Chapter 2 - Business cycles and forecasting
endogenous variable
A variable that is explained within a theory, sometimes called an induced variable or dependent variable
trend line
a line that shows the general direction in which the indexes that were used moves, e.g. the business cycle
moving average
a method of repeatedly calculating a series of different average values along a time series to produce a trend line
leading indicators
a set of key economic variables that economists use to predict future trends in a business cycle
exogenous variable
a variable that is determined outside the theory, it is an autonomous or independent variable
depression
economic activity is at its lowest - deepening of the recession
coincident indicators
economic indicators that usually change at the same time as changes in overall business activity
Phillips curve (description)
illustrates the inverse relationship between the unemployment rate and the inflation rate
lagging indicators
measures of economic performance that usually change after real GDP changes
amplitude
measures the distance of the oscillation of a variable from the trend line and indicates the severity of cyclical fluctuations
recession (technical recession)
negative economic growth for at least two successive quarters
examples of leading indicators
number of new motor cars sold net new companies registered share prices job advertisements in the Sunday Times
trough
point where the economic contraction is at its lowest
peak
point where the economic expansion is at its highest
examples of coincident indicators
registered unemployed real retail sales
business cycle
successive periods of growth and decline in economic activities
fiscal policy
the government's policy in terms of the level and composition of government spending, taxation and borrowing
monetary policy
the measures taken by the monetary authorities to influence the quantity of money or the rate of interest with a view to achieving stable prices, full employment and economic growth
new economic paradigm
the view that demand-side as well as supply-side polices should be used to achieve long-term economic growth
interventionist (Keynesian) approach
the view that markets are inherently unstable which implies that government must intervene to stabilise the economy
monetarist approach
the view that the growth path in the economy is determined by that natural growth in the supply of available resources of production
extrapolation
to estimate something unknown from facts that are known
examples of lagging indicators
unit labour costs in manufacturing real investment in machinery and equipment number of commercial vehicles sold hours worked in construction
economic indicator
used to measure trends in the economy, e.g. GDP