CA Foundation · Business Economics · Business Cycles
Which of the following is a leading indicator of business cycles rather than a lagging indicator?
New orders for capital goods and building permits are leading indicators, because they signal planned investment and output before the wider economy turns. Unemployment rate, outstanding business loans and average duration of unemployment respond after changes in output, so they are lagging indicators.
- AUnemployment rate
- BNew orders for capital goods and building permitsCorrect
- COutstanding bank loans to businesses
- DAverage duration of unemployment
Explanation
Leading indicators change before the economy turns, and new orders for capital goods and building permits reflect future investment plans. Unemployment rate, outstanding business loans and duration of unemployment typically adjust after output has already changed, so they are lagging indicators.
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