Economic Indicators - Essay Example

Economic Indicators Economic Indicators illustrate how sound the economy is working at present and how well it is going to perform in the future. These indicators influence the investor’s predictions about the future of the economy. The investors use the available information to make decisions and forecasts. The economic Indicators have different relations with the Economic Business Cycle. They are either Pro cyclic, Counter cyclic or Acyclic in nature. A pro cyclic economic indicator shifts in the same direction as the current market situation. Hence, if the financial system is functioning well, this number is increasing and vice versa. A counter cyclic economic indicator shifts in the opposite direction as the economy. An acyclic economic indicator has zero affect on the functioning of the economy and is generally of very little importance to the economy. The major pro cyclic economic indicators are GDP, Interest rates, Investment, Inflation, Labor etc. While the main counter cyclic economic indicators are Unemployment, International Trade, and Federal Finances etc. The Gross Domestic Product is one of the most significant direct indicators in the economy. It is vital to monitor the growth rate of the GDP. Any deviation from the range tends to have a significant impact on the economy. An increase in the growth rate above the general level may lead to high inflation and poor performance in the rate of growth leads to a recession. Interest Rate is a pro cyclic or direct economic indicator. They are used to manage the booms and slumps in the business cycle and finely tune it. The interest rates fall in recessions and they rise in inflationary periods. International trade is the swapping of goods and services between countries, which tends to have countercyclical nature. When an economy is prospering and experiencing an economic boom then people choose to spend a bigger part of their income on imported and local goods and services, however, exports don’t have such alterations. This in turn upsets the balance of trade, as net exports are negative, which results in more being imported and less being exported. Whereas, when an economy is in a slump, people tend to spend less on imported goods and services and just focus on the basic necessities. This encourages more goods and services to be exported and has a favorable impact on the balance of trade as less is being imported. Keynesian school of thought promotes the use of counter cyclical economic policies in order to reduce the consequence of the business cycle. In times of an upswing these polices cool down the economy while they stimulate it when it is down. One of these counter cyclical fiscal policies is progressive taxation. Through progressive taxation people are taxed according to their income. As the income increases, taxation also increases. This helps in reducing the high demand. Hence this policy aims to decrease demand when the economy is enjoying a boom and thus it curbs down the boom. The retail sales are the monthly economic indicator that measures the sale of the retail goods over a period of time. The retail sales report measures the in store sales as well as the sales outside the store. It arranges the sales into categories like food, clothing, accessories etc. These figures published in the retail reports benefit the stock investors who are investing in these companies. The retailer buys the goods in bulk from the manufacturers and then either sells the goods through a wholesaler or by himself. Their buyers are both individuals and businesses. Hence it is a very vital and essential economic indicator in order to keep the cycle of investment and sales going side by side. The retail sales data may include the price signals that are sent to the consumers. In this way if the consumers demand more, the producers are signaled to increase their supply and vice versa. Question 2 Henry Hazlitt is one of the most famous American Economist. He has written several books but two of them; Economics in One Lesson (1946) and The Failure of the New Economics (1959) made an immense contribution to the world of economics. He provides an introduction to free market economies and has based the first book on Frédéric Bastiat's essay "What is seen and what is Not Seen". He writes about the money spent on those things that are not beneficial to the society. In the other book he provided a detailed critique of   4Matching Text John Maynard Keynes' book â€œThe General Theory of Employment, Interest and Money”. Hazlitt criticized Keynes and provided reasoning for his own point of views. For example he considers Keynes’s inflationary policies as dangerous and explained that the inflationary polices tend to balance the individual price-wage relationship by raising the prices in the economy. He also said that the labor unions and workers are aware of the effect of the rising price on the value of the real money wages. When the prices increase, their purchasing power falls and in return they are likely to demand for a higher wage rate. Hence says that they cannot demand for the same wage as it was before the price rise. He also disagrees with Keynes concepts regarding the relationship between saving, investment and interest rates. Likewise he has questioned nearly all of Keynes concepts and provided his reasoning. The policy decision that is taken by the policymakers in Bahrain was because of the fall in the international value of the US dollar. As a result they did not provide the same facilities to non Bahraini residents as they did to the ones in Bahrain. Although it created economic constraints for the international citizens but it was a measure adopted by the government to improve the economic situation in their own country. Through this way the government can overcome its financial debts in the international scenario and also increase their wealth. As the foreign citizens constitute a very large percentage of the country, any foreign exchange flowing in their own country would contribute to improving the value of US dollar. Read More