There are three major macroeconomic indicators that most central banks use to interpret the state of the economy. These are: gross domestic product (GDP), inflation, and the unemployment rate. While these indicators can provide a valuable view into the health of the US economy, they don't provide a clear-cut picture of all the elements that make up the economy. For this reason it is very important for a central bank to employ a wide range of other indicators as well in order to get a complete picture of the state of the economy.
One of the most widely used macroeconomic indicators is the gross domestic product (GDP). The official definition of GDT is the measure of economic activity resulting in a change in aggregate domestic income. GDT is sometimes referred to as “the good,” “expectations,” or “the balance.” When indicators like this are observed over time, they give an indication of the health of the economy as a whole.
In addition to the GDT, another popular indicator is the stock market index. Stock prices are commonly thought of as indicators of the health of the economy, but there are several reasons why stock prices should not be the only measurement of value. First, the value of a stock reflects only the value of the company's stock outstanding – the value of the company's shares. Therefore, stock prices don't necessarily reflect the value of the entire economy.
A second popularly used indicator is the inflation rate. The standard definition of inflation is the increase in the purchasing power of money that is accumulated by the average wage earner over time. Consistent increases in the inflation rate over time are considered a stimulant of the economy. However, it is important to remember that inflation can result from a number of factors, including government policies, global climate conditions, and other economic variables.
Lastly, another widely used indicator is the interest rates. Interest rates are used to provide lenders of loans with information about future inflation. Inflation drives up the cost of living, which makes goods and services more expensive for the average consumer. As a result, interest rates are often used by financial institutions to determine whether to provide credit to borrowers or to charge high interest rates on existing accounts.
There are many different types of indicators, which are all useful for gauging the state of the economy. However, it is important to remember that different indicators base their estimates on different economic theories. As a general rule, it is best to stick with the most commonly used indicators. The three macroeconomic indicators mentioned above are just some of the many available. As with any economic indicator, it is important . . . . . . to remember that these estimates should not be used as predictions of how the economy will perform.