Match each economic indicator on the left with its corresponding business cycle category and function on the right.
- Building permits for new residential housingLeading indicator that forecasts future construction activity and overall economic expansion
- Employees on nonagricultural payrollsCoincident indicator that measures current employment levels and aggregate real-time economic output
- Average prime rate charged by commercial banksLagging indicator that reflects corporate borrowing costs adjusted after broad interest rate trends change
- Average duration of unemploymentLagging indicator that tracks labor market recovery delays following business cycle turning points
Answer
Building permits pairs with the leading indicator forecasting housing activity; Employees on nonagricultural payrolls pairs with the coincident indicator measuring current employment; Average prime rate pairs with the lagging interest rate indicator; Average duration of unemployment pairs with the lagging labor duration metric.
Building permits reflect future construction commitments (leading). Nonagricultural payrolls measure real-time aggregate labor market performance (coincident). The prime rate and average duration of unemployment react only after broader business cycle shifts occur (lagging).
Step-by-Step Solution
Key Concept
Distinction among Leading, Coincident, and Lagging Economic Indicators