Just as you have indicators on your car dashboard, or your video game, the economy has indicators too. Economic indicators are macroeconomic factors economists measure regularly, which can help tell us more when we put them all together in various ways to analyze the economy.
In the same way that knowing how much gas is in the tank or how much health you have left doesn’t give you the whole picture, neither does just knowing what GDP (gross domestic product) currently is. Other popular economic indicators include the unemployment rate, interest rates, the consumer price index (CPI), retail sales, and stock prices.
The thing about economic indicators is that they aren’t as reliable as the ones in your car and video games (hopefully). Sometimes, when some economic indicators are at certain levels, we expect something to happen—and it doesn’t.
For instance, when stagflation occurs, the economy has slowed (GDP has gone down) and both inflation and unemployment are high. Stagflation means that prices are going up even though spending is going down. You’d think we’d see prices go down if nobody’s buying, right? That means our economic indicators are doing things we didn’t think they’d do in tandem, which makes things confusing. For what it’s worth, stagflation doesn’t happen too often, but it has happened.
Since the Fed often decides its policy based on how to balance inflation and unemployment, stagflation makes the economists at the Fed go “uh….hmmmm.” Usually, they try to make inflation go down, which makes it harder on the unemployed, or they give the unemployed a break, which makes inflation go up. Inflation shouldn’t be happening when the economy is down in the dumps. So while economic indicators are helpful most of the time, sometimes...they’re not.
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Finance: What is Recession?15 Views
finance a la shmoop what is recession well here's one here's another and
another and well here's an economic recession so technically when GDP [Set of teeth appear]
declines for two sequential quarters that is a recession and you can glean
enough from this most excellent chart that in most years GDP grows not
massively but relatively steadily and with compounding the US has grown GDP
from a trickle to a torrent in a recession economic activity declines [Recession definition appears]
maybe a half a percent a percent maybe two percent and you might not think
that's a big deal but we're a nation living on credit that is plastic these [Man using credit card]
things mortgages car loans bunch of other credit II kind of things so a
decline of even 1% when we were expecting growth of two is a delta of 3%
and that change is exacerbated with leverage when people fear for their job
safety they stop buying those extra pairs of earrings at the mall they get [Woman biting her nails]
one less tattoo and they stop making appointments at Botox Depot so all of
the sudden activity in given quote luxury sectors or otherwise unquote just [Person receiving a tattoo]
stops dead and there's a multiplier effect here as well because a wealthy
banker who used to throw 20 parties a year now only throws four so all those [Calendar displaying party days appears]
bartenders and oboe players and ice sculptors yeah they're all out of work
as well and then they buy less beer and that new ice pick the sculptor was gonna
buy yeah well she'll just sharpen her own and make do with it you know until
the GDP grows again after the recession is over in a few years so yeah [Boom/bust cycle appears]
recessions they're dangerous and credit high credit makes them all the more
dangerous so be wary
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