BUS 626 W5D1

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Ashford University *

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626

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Economics

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Jan 9, 2024

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Uploaded by cc0909n

Economists use forecasting to help predict the future outlook of the economy. One such way of doing so is through the index of leading indicators. This is the index based on ten variables that will be in decline before a recession and will begin to climb prior to a business expansion. When the index has been in decline for 3 consecutive months, it is a foreshadowing that the country can fall into a recession. While the index has accurately predicted 9 recessionary periods since 1959, it also had a downturn on 4 other occasions where a recession did not occur (Gwartney et al, 2022, pg 294). The Phillips curve represents data that depicts the relationship between the rate of inflation and the rate of unemployment. This curve coincides with a Keynesian belief that manipulating money can bring full employment. However, this notion has been disproven and historically low employment goes with times of stable money and little inflation (Forbes et al 2022, pg 45). As a businessperson, the index of leading indicators would be more valuable to me rather than the Phillips curve. The leading indicators provides frequent updates and feedback loops that could give an owner indications about where the economy is going. For example, a company that acquires a new client, has an influx of new orders, and has to have their staff stay on for longer hours to fulfill customer expectations would be a reasonable indicator for a company of the general economic activity and that a decline would not necessarily be likely. References Forbes, S., Lewis, N., & Ames, E. (2022). Inflation: What it is, why it’s bad, and how to fix it . Encounter Books. Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2022). Macroeconomics: Private and public choice (17th ed.). Cengage Learning.

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