Week 4 – Discussion Forum
Guided Response: In your response take the opposing view of the original post. Respond to at least two of your fellow students’ and to your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your opposing view by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.

There two of my classmate’s discussion that need responded to. Lisa Schreiner and Shawnta Pierce
Lisa Schreiner
SaturdayMay 2 at 2:19pm

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Forecasting the future of the economy is not an easy or accurate task. The best information one has to go on is the previous trends in different measures called indicators found in the Index of Leading Indicators. According to Gwartney et al., (2018), the Index of Leading Indicators are:

1. Length of the average workweek in hours

2. Initial weekly claims for unemployment compensation

3. New orders placed with manufacturers

4. Percentage of companies receiving slower deliveries from suppliers

5. Contracts and orders for new plants and equipment

6. Permits for new housing starts

7. Interest rate spread, ten-year Treasury bonds less federal funds rate

8. Index of consumer expectations

9. Change in the index of stock prices (500 common stocks)

10. Change in the money supply (M2)

Data on these indicators publishes monthly, providing points of analysis for economists to review and predict upcoming changes in the economy requiring action or mitigation. A three month trend is the time of assessment. If data reflects a decline over the three month assessment, a recession is indicative and if data reflects an increase over the assessment period, expansion is on the horizon (Gwartney et al., 2014). The method is not a definitive process, but a tool for measuring indications and has failed a several occasions throughout the years.

The Phillips curve was considered an indicator between the rate of inflation and the rate of unemployment reflecting low unemployment when inflation was high (Gwartney et al., 2018). According to Atkeson and Ohanian (2001), “Since theory predicts that agents’ expectations of inflation should vary as the economic environment changes, theory predicts that any relationship between current unemployment and future inflation observed in historical data should be expected to change as the economic environment changes. Thus, there is no theoretical presumption that a statistical relationship observed in one economic environment would be stable enough to be useful for forecasting inflation when that economic environment changes” (p. 3). In other words, unemployment is not low because inflation is high. Fluctuations in the rates occur due to actions people take based on the expectations people have. There is also a lag in time between when the action is implemented and effects reflect variations.

As a business person I would use this predictive macroeconomic information to make business decisions for investing, expansion, capital purchases, and cutbacks. An increase in permits for new housing indicates an uptick in construction. Expectations of sales increases in wood, cement, nails, windows, and labor will occur. Increases in labor can result in a decrease in unemployment. If contracts and orders for purchases in equipment increase, people are infusing capital into businesses and confident in the economy to expand. The capital can be via cash or securing a loan to purchase the equipment. If loans are on the rise, this could be an indicator interest rates are low. Every data point provides insight for analysis in decision-making. Many factors possess relationships with other factors, leading from one indicator to the next.

References

Atkeson, A. & Ohanian, L. (2001). Are Phillips Curves Useful for Forecasting Inflation?*. https://researchdatabase.minneapolisfed.org/concern/publications/g732d916c (Links to an external site.)

Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). https://www.cengage.com (Links to an external site.)

Shawnta Pierce
TuesdayMay 5 at 6:55pm

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Forecasting the Economy to Make Decisions Week 5 #1

What Helps Economists Forecast the Economy?

For economists to forecast the economy, they usually follow information from various sources. For instance, they use macroeconomics, and microeconomic information is typically helpful to them. Further, they conduct a market search about the consuming properties of the people and the current economic levels (Gwartney, Stroup, Sobel, Macpherson, 2018). With the market information, they identify the leading indicator where they follow the information on it. Current GDP and GNP statistics are also useful tools for economics to predict the future of the economy. Finally, they are directed by human behavior and their learning knowledge and expertise to predict about the future of the economy.

Discuss the Index of the Leading Indicators

Leading economic indicators is an essential factor for predicting the future of the economy. It is usually a helpful tool to the forecasters in forecasting for the future of the economy. Typically, whenever there is a progressive change of the index for three months reveals a turning point in the marketplace. For example, consecutive positive reading indicates a possible boom in the economy.

Is the Phillips Curve a Helpful Predictor? Why or Why Not?

Philips curve is no longer useful. I think that the curve does not reflect the way the inflation rate surges. Further, it did not outline the way the rate of unemployment leads to inflation (Frbsf.org, 2018). The approach also does not forecast the rise in a single equation.

As a Business Person, How Could You Use This Predictive Macroeconomic Information to Help Make Business Decisions?

As a business person, I would apply the concept by Philips to make a business decision by linking the relationship between inflation and unemployment. As a result, I shall be able to understand that the high level of unemployment leads to reduced purchasing power, and therefore the business might be in trouble. Consequently, it has to look for defense mechanisms for it to enhance sustainability. For example, policymakers could use the Philips curve to maintain a lower level of unemployment rate forever as long as they are willing to pay the price of higher inflation.

References

Frbsf.org. (2018). Education | Dr. Econ, what is the relevance of the Phillips curve to modern economies? Retrieved 1 May 2020, from https://www.frbsf.org/education/publications/doctor-econ/2008/march/phillips-curve-inflation/

Gwartney/Stroup/Sobel/Macpherson, G. (2018). Retrieved 1 May 2020, from https://www.amazon.com/Macroeconomics-Private-James-D-Gwartney/dp/1305506758