An analyst evaluating macroeconomic data for an investment committee needs to correctly classify key indicators. Match each economic metric on the left with its proper indicator category and characteristic on the right.
- Building permits for new residential housing unitsLeading indicator that predicts shifts in business cycle momentum prior to aggregate output changes
- Industrial Production IndexCoincident indicator that measures current aggregate physical output alongside overall economic performance
- Prime rate charged by commercial banksLagging indicator reflecting bank lending rates that adjust after broad interest rate environment changes
- Average duration of unemploymentLagging indicator reflecting labor market conditions that remains elevated past the initial economic trough
Answer
Building permits match with the leading indicator predicting business cycle shifts; Industrial Production Index matches with the coincident indicator measuring current aggregate output; Prime rate matches with the lagging indicator reflecting delayed commercial lending rate adjustments; Average duration of unemployment matches with the lagging indicator reflecting labor market lag past the trough.
Building permits predict future economic activity and are leading indicators. The Industrial Production Index reflects real-time output and is a coincident indicator. Both the prime rate and the average duration of unemployment are lagging indicators, with the prime rate lagging policy rate adjustments and unemployment duration lagging recovery at the business cycle trough.
Step-by-Step Solution
Key Concept
Classification of Leading, Coincident, and Lagging Economic Indicators
Estimated Time:2m 0s