American economists continually attempt to gauge the
health of the economy, both for the gain of the private
sector as well as for the global standing of the United
States. Different elements of the economy react differently
to changes in prosperity. Some elements rise and fall as
the economy waxes and wanes. These are known as
coincident indicators. Other elements are known as
leading indicators and usually show a downturn before
the economy does. A third group of elements are known
as lagging indicators and lose vigor only after the economy
has already begun to slow. Economists can predict the
direction of the economy by monitoring these indicators.
Coincident indicators, such as manufacturing and
employment rates, are the best gauge of the current state
of the economy. A continued shift in these indicators allows
economists to determine whether the economy itself is in
the process of an upturn or a downturn. These indicators
coincide with shifts in the economy because they are
dependent on sustained prosperity. But since coincident
indicators reflect only the current state of the economy,
they are not especially useful in predicting how the
economy will perform in the near future. Economists must
look to other indicators for that.
The indicators with the greatest predictive power are
leading indicators, such as mortgage applications and
profit margins. When these indicators rise or fall,
economists can often foretell similar changes in the
country’s economic health. These indicators do not cause
changes in the economy. Rather, they often signal changes
in economic behavior that lead to shifts in the economic
cycle. By contrast, the third type of indicator – lagging
indicators – is useless as a harbinger of change. But these
indicators can be helpful in confirming the assessments
of economists.
Determining which elements of the economy fall into which
category of indicator requires analysis of copious data
and an understanding of the factors that propel the
economy. One must determine which events surrounding
a turn in the business cycle actually contributed to the
change. Establishing a solid framework for understanding
the behavior of these indicators helps economists to avoid
miscalculations and to guide the country through periods
of slow or negative economic growth.
1. The primary purpose of the passage is to
· compare the utility of various economic indicators
· explain the process by which economists draw
conclusions about key factors of economic change
· present a conceptual framework used by economists
to prescribe economic goals
· trace the development of a set of economic devices
· argue for the continued evaluation of economic factors
affecting the business cycle
2. The information in the passage suggests that which
of the following would most strongly indicate an
imminent change in the business cycle?
· a decrease in the employment rate
· a decrease in the number of new homes built per
month
· an increase in the number of new automobiles
produced each month
· an increase in the difference between manufacturing
costs and retail revenues for large home appliances
· a decrease in the number of corporate bankruptcies
per month
3. According to the passage, the main purpose of
economic indicators is which of the following?
· to facilitate the analysis necessary to maintain forward
economic momentum
· to allow investors to time their investments in sync
with economic cycles
· to foster healthy economic competition among various
commercial sectors
· to bring to light several key factors in economic
downturns
· to promote widespread understanding of economic
principles
4. The passage suggests that lagging indicators would
be least helpful in determining which of the following?
· whether predictions based on the behavior of the
mortgage market were accurate
· whether companies ought to cut costs in order to
avoid short-term losses
· whether recent trends in the employment rate were
consistent with the overall economic picture
· whether financial analysts are correct in their
assessment of recent economic developments
· whether the government was justified in taking action
to boost the economy![]()
health of the economy, both for the gain of the private
sector as well as for the global standing of the United
States. Different elements of the economy react differently
to changes in prosperity. Some elements rise and fall as
the economy waxes and wanes. These are known as
coincident indicators. Other elements are known as
leading indicators and usually show a downturn before
the economy does. A third group of elements are known
as lagging indicators and lose vigor only after the economy
has already begun to slow. Economists can predict the
direction of the economy by monitoring these indicators.
Coincident indicators, such as manufacturing and
employment rates, are the best gauge of the current state
of the economy. A continued shift in these indicators allows
economists to determine whether the economy itself is in
the process of an upturn or a downturn. These indicators
coincide with shifts in the economy because they are
dependent on sustained prosperity. But since coincident
indicators reflect only the current state of the economy,
they are not especially useful in predicting how the
economy will perform in the near future. Economists must
look to other indicators for that.
The indicators with the greatest predictive power are
leading indicators, such as mortgage applications and
profit margins. When these indicators rise or fall,
economists can often foretell similar changes in the
country’s economic health. These indicators do not cause
changes in the economy. Rather, they often signal changes
in economic behavior that lead to shifts in the economic
cycle. By contrast, the third type of indicator – lagging
indicators – is useless as a harbinger of change. But these
indicators can be helpful in confirming the assessments
of economists.
Determining which elements of the economy fall into which
category of indicator requires analysis of copious data
and an understanding of the factors that propel the
economy. One must determine which events surrounding
a turn in the business cycle actually contributed to the
change. Establishing a solid framework for understanding
the behavior of these indicators helps economists to avoid
miscalculations and to guide the country through periods
of slow or negative economic growth.
1. The primary purpose of the passage is to
· compare the utility of various economic indicators
· explain the process by which economists draw
conclusions about key factors of economic change
· present a conceptual framework used by economists
to prescribe economic goals
· trace the development of a set of economic devices
· argue for the continued evaluation of economic factors
affecting the business cycle
2. The information in the passage suggests that which
of the following would most strongly indicate an
imminent change in the business cycle?
· a decrease in the employment rate
· a decrease in the number of new homes built per
month
· an increase in the number of new automobiles
produced each month
· an increase in the difference between manufacturing
costs and retail revenues for large home appliances
· a decrease in the number of corporate bankruptcies
per month
3. According to the passage, the main purpose of
economic indicators is which of the following?
· to facilitate the analysis necessary to maintain forward
economic momentum
· to allow investors to time their investments in sync
with economic cycles
· to foster healthy economic competition among various
commercial sectors
· to bring to light several key factors in economic
downturns
· to promote widespread understanding of economic
principles
4. The passage suggests that lagging indicators would
be least helpful in determining which of the following?
· whether predictions based on the behavior of the
mortgage market were accurate
· whether companies ought to cut costs in order to
avoid short-term losses
· whether recent trends in the employment rate were
consistent with the overall economic picture
· whether financial analysts are correct in their
assessment of recent economic developments
· whether the government was justified in taking action
to boost the economy