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Difficulty: EasyEconomic Indicators and Business Cycle Phases

An analyst evaluating macroeconomic data notes that building permits for new private housing units have consistently increased over the past two quarters. Under standard economic indicator classifications, building permits are categorized as which type of indicator?

  1. Leading indicatorAnswer
  2. B
    Lagging indicator
  3. C
    Coincident indicator
  4. D
    Monetary policy tool

Answer

Building permits for new private housing units are categorized as a leading economic indicator.
Building permits for new private housing units are classified as a leading economic indicator because issuing a permit precedes actual construction expenditure, employment, and economic output. Therefore, an increase in permits signals future economic growth before it appears in aggregate measures.

Step-by-Step Solution

1
Identify the nature of building permits as an economic measurement.
Building permits reflect future construction and investment activity prior to actual building production and employment changes.
Housing construction requires permits before physical development begins, signalling upcoming economic expansion.
2
Map building permits to the correct FINRA economic indicator category.
Metrics that move ahead of the overall economy are defined as leading indicators.
Leading indicators help economists and investors forecast economic turns and business cycle shifts.

Key Concept

Classification of Economic Indicators (Leading, Coincident, and Lagging)
Estimated Time:45s
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Topics

Economic Indicators and Business Cycle Phases

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