What do each of the following areas tell us about the recent

What do each of the following areas tell us about the recent health of the economy?

A. Corporate profits,

B. Labor force and the unemployment rate, and C. The consumer price index and its components

Solution

A) Corporate profits tend to be highly sensitive to changing business conditions . A decline in corporate profits is an indication of deep recession . A stable corporate profits indicate the economy is not growing but has remained constant . An increase in the corporate profits is an indication of boom or growth of the economy which has resulted in higher corporate profits .

B) Labor force and unemployment rate is one of the most widely used barometers of the health of the economy . Labor force is defined as being comprised of people who are 16 years of age or over , and who either are employed or are actively seeking work . The unemployment rate is defined as the number of unemployed persons expressed as a percent of the labor force. Labor force and unemployment rate are related to country\'s GDP , or the total value of goods and services produced in a country . GDP can rise as the productivity of labor force rises . If the productivity of labor force falls , GDP can fall.  Labor force productivity can fall if workers who are employed are unable to work at their full potential. GDP can also decrease if the number of workers employed decreases . GDP and unemployment rate are also related. If the annual increase in GDP is not sustained , there is a risk of an increase in the rate of employment.

3) The consumer price index is made up of a basket of goods and services that consumers most often use in their daily lives. The consumer price index is used to measure the rate of change in overall prices . A CPI that is rising indicates that prices are going up and that inflation is present. A falling CPI indicate that prices are falling and deflation is present . Inflation is the persistent increase in prices whereas deflation is persistent decrease in prices . Both are harmful to the economy . Inflation results in reduction of purchase power and higher prices for goods and services . Therefore the consumer price index and its components is an indicator of the direction in which the economy is heading .