2.3- Indicators of the level of economic activity

regularly measure changes in Australia’s production of goods and services.Want to assess whether we are better or worse off in regards to living standards
Types of productive activity and their measurement
1. measuring productive activity is difficult and inaccurate
2. Two types
  1. economic activity
  2. non market activity
Economic Activity
1. GDP measures this
  1. estimate level of economic activity. Represents total annual value ($) of goods and services produced by a nation.
    1. measured annually or quarterly
2. GDP needs to be adjusted accordingly because prices increase and decrease regularly
3. Real value of GDP is known as chain value GDP but this is still far from accurate
  1. C.V GDP = guesses the value of some products. Quality of the product is also difficult to value and therefore aren't really considered in GDP
4. GDP gives no indication of how goods and services are produced and shared. No allowance allocated to hours taken to make the product or the size of labour force.
Non-market Activity
1. Define: production that is not actually sold and occurs mostly within individual households, such as personal houseworks and gardening, or the black market.
2. often ignored. Isn't included in real GDP
3. the output of goods aren’t actually sold and its value is to difficult to measure
4. not included in GDP it is not taking into a full productive capacity
Indicators of economic activity
1. Many other types of indicators apart form GDP.
2. three main categories
  1. 1 - Lagging indicator of economic activity
    1. Define: changes in economic activity some time after the event has occurred because they take time to respond.
    2. Do not tell us what is happening currently
    3. eg) GDP [only tells us what happened in the past 3 months]
    4. other e.g.) unemployment rates, CPI or inflation rates and changes in weekly earnings.
  2. 2 - Coincident indicators of economic activity
    1. Move very closer with actual changes in level of economic activity
    2. Published in short intervals and tell us what is happening right now.
    3. Monthly changes in retail sales is an example
  3. 3 - Leading indicators
    1. Define: allow economic forecasts or predictions to be made about the likely future level of economic activity
    2. Not completely reliable they forecast events in the future
    3. eg) business confidence index, new housing approvals, changes in economic activity of our trading partners.
Looking for patterns in indicators of economic activity
1. examining indicators involves looking at long term trends, short term cycles, seasonal factors and erratic behaviour or swings
2. Four types of patterns
  1. 1- Long term trend patterns
    1. 10 year or longer period of time
    2. the average direction of economic activity is rising
    3. Used for comparison
  2. 2- Cyclical patterns
    1. statistics plotted over a period of time and follow a fairly regular wave where there are peaks and troughs.
    2. Normal behaviour of GDP, unemployment, inflation and the current account deficit.
  3. 3- Season patterns
    1. Economic activity could move in a similar direction during same months each year
    2. Applies to Seasonal unemployment
    3. Soft drinks and ice creams up in summer
  4. 4- Erratic patterns
    1. No real pattern for economic activity
    2. Reaction to a once off event such as the Olympics and 9/11 attacks

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2.3- Indicators of the level of economic activity

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