Question

• Define, identify, and apply macroeconomic indicators.

Answer 1

The three most significant for the stock market are inflation, gross domestic product (GDP), and labor market

Inflation- Inflation is an important indicator for securities markets because it determines how much of an investment's real value is lost, and the rate of return you need to offset that erosion. For eg, if this year's inflation is 3%, and your spending also rises by 3%, you've only managed to keep even in real terms. And to face market risk, you should be given a "price premium" above and below the rate of inflation. Thus investors buying stocks expect to get a return equal to (or better than) that inflation rate adjusted risk premium. So a higher inflation rate means you should get a higher return on equity-market investments.

GDP- While GDP is an important component of inflation, it is also important as an intrinsic economic indicator. It tells you how fast the economy is growing (or contracting) compared to the reading from the previous year. GDP is the dollar value of all goods and services that a given country produces within a given time. It is calculated either by including all of the income received in an economy, or by all of an economy 's spending. Both measures should be approximately identical.

Labor Market- Labor market is the final major factor influencing the economy. Total jobs and joblessness are the main factors that investors rely on here. US people who are now working constitute the workforce, while the unemployed are those who are actively searching for employment but have not yet found it. The unemployment rate does not represent those without work who do not want work, such as teachers, seniors or those who are depressed and who have just given up seeking to find a job.