4.8 BACKGROUND KNOWLEDGE: Overview of factors that may affect Australia’s level of economic activity

The long-term refers to changes in economic activity over perhaps 10 or 20 years, or more. Often it can represent a straight line of best fit sitting midway between the peaks and troughs on a graph (see graph 1).

Short-term cyclical swings

The short-term cycles in economic activity are the wave-like changes in direction, lasting perhaps between 1–5 years. Typically, these can be seen in data like GDP, unemployment, and inflation rates (see graph 2).

Seasonal patterns

Some data displays a seasonal pattern that occur in the same month or time each year. An example could be the spike in ski sales in winter each year, toy sales before Christmas, and chocolate at Easter (see graph 3).

Erratic behaviour

Erratic behaviour where there is no obvious pattern because the data are reacting to one-off events like the effects of the Olympic Games on the demand for accommodation, or the impact of widespread fires on national output (see graph 4).

FIGURE 4.10 Looking for patterns in statistical indicators Graph 1 Long-term trends 20 Actual trend Long-term average trend line Years 100 Value of wool sales ($ billions) 5 10 15 Peak 0 10 20 Years

Graph 2 Cyclical behaviour Peak

GDP ($ billions) 50 Trough 0 1 2 3 4 5 200

Year 1

Surfboards sold Graph 3 Seasonal behaviour Year 2 Years/months N D J F M A M J J A S O N D0 0 100 Years 100 Melbourne hosts the Olympic games Graph 4 Erratic behaviour Hotel occupancy rate (%) 1 2 3 0 0 50 0 UNCORRECTED PAGE PROOFS Resources

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4.6 Quick quiz 4.6 Exercise 4.6 Exercise 1. Distinguish between lagging and leading indicators of economic activity, giving one example of each. (2 marks) 2. Classify whether each of the statements about economic indicators in table 4.4 is true or false. Be prepared to defend your responses. (6 marks) TABLE 4.4 Types of indicators Statement True or false a. In a recession, the employment rate is high. b. GDP is a lagging indicator of economic activity. c. Inflation is high in a boom due to limited spare capacity and widespread shortages. d. Booms in economic activity are good for everyone. e. The unemployment rate can be too low in booms adding to inflationary pressures. f. The wild weather and floods in NSW and Queensland in 2022 will tend to slow economic activity. g. St Valentine’s Day in February each year would have a seasonal impact on chocolate sales and economic activity. h. Consumer confidence can help reveal the likely direction of consumer spending and economic activity into the future. i. New building approvals are a lagging indicator of changes in economic activity. j. Leading indicators are usually more accurate than lagging indicators. k. Lagging indicators tell us what was happening to economic activity some time ago. UNCORRECTED PAGE PROOFS l. Coincident indicators give a better guide to where the economy will be in a few months’ time.

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