Econ 101 > Cycles, Leading variables, lagging variables

Econ 101

Cycles, Leading variables, lagging variables

GDP is value of the goods and services generated by companies of a certain country.

The main measure of aggregate economic activity is GDP, or output. Most people think the economy is going well if GDP growth is high They become depressed if growth becomes negative (Negative growth has inspired thoughts of suicide). GDP in the USA: Exact Values

In the long term series of GDP output, two main things are noticeable: one is that output has been increasing steadily over the last 50 years. However, it wiggles up and down from one year to the other. We can break down this series into a trend (long term growth), taking away the wiggles, and in cycles, taking away the trend.
GDP in the USA: Smooth Graph (not actual values)

GDP in the USA: Smooth Graph (not actual values)

Information most often reported in the news relates to cycles. The question we are concerned with is how the economy, represented by output, will evolve in the next few months. More rarely do we wonder what is going to happen in fifty years. Of course, one question is not independent of the other. For instance, today's decisions in government spending could affect the economy in the long term (in the case of Belgium: huge government debt of the 70s influences the economic process now). Although there are important interdependencies, we will focus on the cycles, at least for now.