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Discuss the use and limitations of indicators: output, unemployment, inflation and balance of payment in measuring contry's eco - Essay Example

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Running Head: Economic Indicators Economic Indicators Economic Indicators The performance of economic indicators is important in the development of main financial markets, specifically interest rate growth, stock prices in addition to the buying and selling of currencies…
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Discuss the use and limitations of indicators: output, unemployment, inflation and balance of payment in measuring contrys eco
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Extract of sample "Discuss the use and limitations of indicators: output, unemployment, inflation and balance of payment in measuring contry's eco"

Download file to see previous pages Additionally, the Fed observes many of these indicators while it chooses what to do with reference to interest rates. For these reasons, the economic indicators are of great importance to investors (The Economist, p. 34, 2010). Economic growth is not free of risk. Even though the material growth can be calculated to some extent by the expansion of national output, earnings as well as payments, if the economy develops rapidly, it can result in short as well as long-term difficulties. Cyclical differences in output as well as in other macroeconomic indicators are positively linked across nations. Unemployed workers symbolize wasted production capacity. This indicates that the economy is producing a smaller amount commodities and services in comparison to what it could be producing. It as well indicates that consumers using a lesser amount of cash, which has the possibility to cause more unemployment, starting a cycle. Rising levels of unemployment increases income inequality in many countries. Various communal critics are apprehensive that an underclass of long term unemployed is growing. These individuals, in addition to those who are working on a temporary, casual basis in inadequately paying employments are critical of the prosperity of the privileged, qualified groups in the society. The unemployed have expertise and schooling that are not being used in production. National income as well as production could rise, if these individuals were on job. Majority of the unemployed get transfer payments from the Federal Government. With more or less 850,000 individuals unemployed, this indicates a huge expense from the Federal Budget, funds that could be used somewhere else. Another important economic indicator is inflation. It gives significant insight on the condition of the economy along with the sound macroeconomic strategies that oversee it. A steady inflation not just offers a nurturing setting for economic development, but also supports the underprivileged and fixed income residents who are the most helpless within society. Low inflation may lessen the severity of economic collapse by allowing the labour market to change promptly during a recession, and decrease the risk that a “liquidity trap stops monetary policy from stabilizing the economy” (Baumohl, p. 284, 2007). The task of maintaining low rate of inflation as well as keeping it steady is generally given to monetary establishments. Usually, these monetary establishments are the central banks that manage the amount of the capital supply by setting the interest rates, by open market functions, and by the setting of banking reserve needs. The most pressing effects of inflation are the reduced purchasing power of the currency in addition to its depreciation. Another negative effect of inflation is that a few individuals decide to speculate greatly in an effort to get benefit of the higher price level. Because several acquisitions are high-risk investments, spending is averted from the regular channels and some structural unemployment may occur. Inflation modifies the distribution of revenue. Lender usually suffer more than borrowers throughout lengthy inflationary periods, which indicate that loans made in advance are paid back afterwards in inflated currency. “Inflation deteriorates the role of money as storage of value, because every unit of money is worth less with the passing of time” (Sipley, p. 162, 2009). The progressive failure of the value of money in ...Download file to see next pagesRead More
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