Most Important Economic Indicators - Essay Example

?Running Head: Economic Indicators Economic Indicators [Institute’s 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. Economic indicators are the most closely observed parts of news within the investment world. Most important indicators are those that are supposed to modify ahead of alterations in the economy, providing a quick look of what is going to take place earlier than the actual change. 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 a time of inflation makes the borrowers to be less keen to utilize the money as regular differed payments. When the central bank acquires domestic currency and trades the foreign reserve cash in the private FOREX, the transaction shows a balance of payments deficit. On the other hand, when the central bank sells domestic currency and acquires foreign cash in the FOREX, the transaction shows a balance of payments surplus. A balance of payments deficit takes place each time there is additional demand for foreign currency on the private FOREX on the fixed official exchange rate. To satisfy the surplus demand, the central bank will usually automatically get involved with the FOREX and sell foreign reserves. As a result, by tracking trade of foreign reserves in the official reserve account one can find out if the nation has a balance of payments deficit or surplus. “Developments in the quantity as well as quality of the factors of production that a nation has - that is, ‘land, labour, capital and enterprise’ - causes economic growth” (Yamarone, p. 94, 2007). On the other hand, economic collapse may take place if the quantity and quality of any of these factors of production decreases. All economic resources are limited and have an opportunity cost. The comparative scarcity of land regardless of a rising population indicates that the ‘law of diminishing returns’ might as well become applicable. It is not just the quantity of labour force that will cause economic growth. It is usually the quality of that labour. This will rely on the learning provision in nations (Yamarone, p. 97-100, 2007). Developing the talents of the labour force is an important factor to economic growth. It should always be kept in mind that schooling expenditure includes an opportunity cost with respect to existing consumption and as a result, it is mostly referred to as investment expenditure on human assets. The level of investment in addition to the value of investment will directly have an effect on the economic growth. The competence of the workers as well as the other factors of production will rely upon the quantity and value of resources they have. If production shifts from being labour focused to capital focused, there will be an increase joblessness and poor quality of life (Carnes & Slife, p. 85, 1992). The shortage of capitalist and risk-taking managers will slow down the process of economic growth. For growth to take place, innovations, as well as advancements have to be promoted. Again, the responsibility of schooling is indispensable at this point. Global ventures as well can provide guidance in management skills. References Baumohl, B. 2007. The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities. Pearson Prentice Hall. Carnes, W. S. and Slifer, S. D. 1992. The Atlas of Economic Indicators: A Visual Guide to Market Forces, and the Federal Reserve. Harper Paperbacks. Sipley, R. 2009. Market Indicators: The Best-Kept Secret to More Effective Trading and Investing. Bloomberg Press. The Economist. 2010. Guide to Economic Indicators: Making Sense of Economics. Wiley. Yamarone, R. 2007. The Trader's Guide to Key Economic Indicators. Bloomberg Press. Read More