Free «Economic Indicators» Essay
Indicators of the economy are wide and varied. They range from looking at the index of consumer expectations, average working hours in the manufacturing industry, stock markets, levels of money supply and the changes in the spread of interest rates of treasury bonds. All these indicators and others not mentioned play an important role in the analysis of both present and future performance of the economy.
According to the United States Bureau of Economic Analysis (2009), the best indicators include the leading indicators such as the stock markets which usually change before the economy as a whole changes and the money supply. Others like the consumer expectations index focus on only one segment of the economy.
Money supply also referred as money stock is a very important indicator of economic growth in the future. It basically refers to the total amount of money circulating in an economy at any particular time. Money in this case means currency that is in exchange and also demand deposits. It is normally the duty of the government or the central bank of a nation or state to record and publish all money supply information.
Money supply as an economic indicator is very vital in determining the future of an economy. This is because variances in money supply can be directly linked to changes in price levels and could also affect inflation rates which have a direct relationship with growth in money supply.
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The supply of money is regulated by the government through the development of monetary policies. Through the development of these monetary policies, money supply is broken down into types of money putting in consideration the effect of these policies on each. Some of the different types of money are: M1, M2 and M3. M2 is used when quantifying the amount of money in circulation and also during the explanation of different economic conditions. M2 aids determining the future performance of an economy. This is because it gives a forecast of inflation especially in the prices. Money supply, M2, is crucial in the determination of future trends in the money markets, savings of an economy and also the retail money market mutual funds. Over the past few years it is relevant to note that money supply, M2, has been increasing by approximately 12.9% (Williams & Levin, 2003).
Apart from the indicators of economic growth it is also in order to talk in summary about the real Gross Domestic Product (GDP). In doing this, we will take the United States as our case study. In particular, the real GDP of 2008:Q3 i.e. quarter three of the financial year 2008. According to reports from the Bureau of Economic Analysis (BEA) (2008), there are various reasons as to why the real GDP dropped. Most important of these reasons was that the real personal consumption expenditures dropped by 3.1%in this quarter. Another was that the drop was due to the global recession.
Nevertheless, the GDP could still improve if the President considers enhancing better fiscal policies. The government should increase the plan to increase its exports and reduce the amount of imports. Also, the government should work at reducing strain on the state- budgets and instead increase inventory accumulation.
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The above discussion relies heavily on the Keynesian theory of economics. This because it stresses on dynamic government involvement in ensuring that there is inevitable growth in the economy and also its stability (Dillard, 1948). It is evident from the discussion that the role of government in formulating forward propelling monetary and fiscal policies go hand in hand with the maxims of the Keynesian theory as compare to the Classical approach to economic thinking.