Question

What four measures are the most important indicators of the health of the economy? What are the other leading economic indicators? Go to a financial news source to find out the status of all the economic indicators at this time. Make note of your findings and the date for purposes of comparison. How does the information inform you as an investor? Read the results of the most recent Consumer Confidence Survey athttp://www.conference- Saylor URL: http://www.saylor.org/books Saylor.org 341 board.org/economics/ConsumerConfidence.cfm. How might these survey results inform you as an investor?

Answer 1

Four most important indicators of a healthy economy are:

1. Gross Domestic Product: Gross domestic product is the most common measure of value the output of the economy.
2. Inflation: The currency’s purchasing power is measured by Inflation.
3. Unemployment: The extent to which the economy creates opportunities is measured by unemployment.
4. Interest rates:
5. Interest rates affect the future value of money are the most important indicators of the health of the economy.

Other leading economic indicators:

1. Average work week(in hours).
2. Unemployment compensation claims for initial weeks.
3. Manufacturers placing new orders.
4. Vendor performance by calculating percentage of slower deliveries.
5. Orders and contracts for new plant and equipment.
6. New housing permits.
7. Customer expectation index.
8. Money supply changes.

As an investor, a decline in the leading indicators for three consecutive months is thoughtto be a strong sign that the economy is in a downturn or even heading toward a recession. This would of course, dissuade me from investing further as the risks exceed returns during this period.

Answer 2

Please address the following question in your initial posting:

Economics teaches us that there is no such thing as a free lunch and that every decision we make has a cost associated with it. Indeed, our preference for liquidity (money) is no exception. The more we choose to hold money, the greater the sacrifice. 

1. Under what circumstances would you choose to hold money instead of other forms of wealth-say an expensive painting or a house? Discuss two such situations

2. How does household preference for cash affect money creation? Support your answer using material from the textbook or outside sources. Please cite your sources.