Economics
Figure 1 depicts Model I. Here, we imagine an economy that produces only consumption goods. To keep Model I as simple as possible we further suppose that the only consumption good is cars. These cars are produced by firms which are staffed by the households and owned by the households.
From using the forecasting method above it should have been possible to predict that the economy would stagnate, and with high likelihood enter a recession, about 1,5 years before the dated recession. Also I argued that forecasters using this method should have been able to predict that the future recession would with high likelihood be of great magnitude at least 6 months before December 2007.
After the introduction to economic indicators in section : macroeconomic forecasting through economic indicators, this section will look at the possibilities of predicting the recession starting in December 2007 using these indicators. Again it is important to remember that as this paper is written ex. post with revised data and a broad understanding of what went wrong1, it could easily be pointed at numerous of relatively detailed and complicated indications that something was fundamentally wrong with the US economy ahead of the recession.
Modern complex economies involve the interactions of large numbers of people and organizations. These economic agents fall into one of three categories: business, households, government, and the rest-of-the-world. Economists find it useful to think of these groupings as sectors of the economy. Let's look at each of these sectors in turn:
Economics is the study of the market economy. The market economy refers to an abstract image of interaction among purposeful, "normal human beings," or actors, under a given set of conditions. The set of conditions are four:
- a system of private property rights,
- specialization,
- the use of money
- free enterprise.