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Difficulty: EasyEconomic Indicators and Business Cycle Phases

Which of the following economic metrics are classified as leading economic indicators when evaluating future business cycle shifts? Select TWO correct answers.

  1. Building permits for new private housing unitsAnswer
  2. Manufacturers' new orders for consumer goodsAnswer
  3. C
    Prime rate charged by major commercial banks
  4. D
    Average duration of unemployment

Answer

Building permits for new private housing units and Manufacturers' new orders for consumer goods are leading economic indicators.
Leading economic indicators shift prior to broader macroeconomic turns. Building permits for new private housing units and manufacturers' new orders for consumer goods are leading indicators because they forecast future construction levels and production volumes.

Step-by-Step Solution

1
Identify which economic metrics change direction prior to broader economic shifts.
Building permits and new consumer goods orders provide advance notice of future business activity.
Forward-looking indicators that anticipate economic turns are classified as leading indicators.
2
Evaluate the remaining options to confirm their timing relative to the business cycle.
The prime rate and average duration of unemployment change only after overall economic trends are established.
Metrics that react after economic shifts have taken place are classified as lagging indicators.

Key Concept

Classification of Leading vs. Lagging Economic Indicators
Estimated Time:50s
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Topics

Economic Indicators and Business Cycle Phases

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