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8.1: Economic Activity

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    287964
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    Economic indicators are comprised of vast amounts of information. To make some sense of this sea of data one needs to have a systematic approach to analysis. A critical first step in any analytic approach is to put indicators in proper context.

    The business cycle is the ‘context’ in which indicators are placed. Without business cycle indicator analysis would be nearly impossible. For example, if the Consumer Price Index registers a 2% month-to-month annualized increase, is this unusual? The answer to this question depends largely on determining the stage of the business cycle. Though the business cycle’s role in interpreting economic indicators is incredibly important, it is also a very simple concept to understand.

    The business cycle is simply the ups and downs in economic activity.

    Economic activity is like ecological fluctuations brought about by seasonal changes. This analogy, though helpful, does have a significant problem. The problem stems from the false impression that the business cycle is as regular as the 12-month seasonal cycle. This is not the case. The ups and downs in economic activity are more like the ups and downs associated with a roller coaster ride; irregular and, at times, unpredictable (see figure 1).

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    Figure 1


    This page titled 8.1: Economic Activity is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Martin Medeiros.