The Business Cycle - Unit 2
Economic Indicators can be used to both predict, identify and confirm what stage of the economy is reflected on the business cycle. Through statistics released by both the Reserve Bank of Australia and the Australian Bureau of Statistics, economists can assess the level of growth within the economy and if it is meeting the macroeconomic objectives and targets. These indicators are known as leading, coincident, lagging and exogenous factors that all assess the economy at different stages and are extremely important as they provide evidence which can support business and policy decisions made.
Leading indicators occur before a change in the economy, predicting the changes and trends in economic activity. They represent the expectations of households and firms regarding future economic changes. Examples include: • Building approval levels * • Share prices * • New employment vacancies * • Stock/inventory held by retails firms * • Manufacturers new sales orders • Consumer expectations * • Business confidence *
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Coincident Indicators represent changes in the economy at the same time it is happening. These are used to help identify the level of the current economy. Examples include: • Manufacturing output • Sale of consumer durable goods (fridges) • Production of building materials • Retail sales * • Job advert numbers • Overtime hours • Vehicle sales/ new car registrations * • Money supply
Lagging Indicators occur after the change in economic activity. They are used to confirm the influences in the economy as well as relate the data to past economic events in order to identify trends. Examples include: • Interest rates • Consumer debt • Length and levels of unemployment * • Bankruptcies • CPI (Consumer Price Index – Inflation) *
Exogenous factors can be defined as external influences that aren't closely linked with economics, however, they may impact economic performance in a nation. These are extremely important indicators activities because they impact confidence and interrupt important sectors. Examples include: • Drought • Flood • Earthquake • Terrorism • COVID-19
Assessment and Exam Tips
When studying this topic, it is important to know the definitions, relevance and significant of indicators and the types. These are 'easy' marks to pick up in multiple choice sections as well as short answer and extended response sections. However, when remembering examples of each, it isn't necessary to remember all of them, but be sure to know the examples that have an * next to them as these are outlined on the syllabus. The other examples can still help your understanding!