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Tuesday, 30 July 2013

Making Sense of Economic Indicators

By Frank Shostak (November 2001)

The government's releases of various economic indicators such as GDP, the CPI, and unemployment receive wide coverage in popular media such as TV networks and newspapers. In a measured and authoritative voice, various economists and other experts who are interviewed discuss their views regarding the health of the economy. Thus, a rise in an indicator like GDP is interpreted as good news while its decline is seen as pointing to trouble ahead.

The experts' opinions are not only confined to the health of the economy in general. They also offer their advice regarding various forms of investments. Some economists who present their assessments seem to be able to offer viewers not only qualitative but also quantitative analyses.

For instance, they will advise viewers that the economy is likely to grow by 0.6 percent in the next quarter, and thereafter the growth will jump to 1.2 percent. Or, they will state that low inflation makes it so much easier for the central bank to lower interest rates to strengthen economic growth.

These types of comments leave a deep impression on viewers that economists are really on top of the issues.  But what are the tools that economists and financial experts utilize in their assessments of the economy? What is the basis of their framework of thought?

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