Explain the reasons that we attempt to predict the direction of the economy. Please explain in...

Explain the reasons that we attempt to predict the direction of the economy.

Please explain in detail.

Expert Solution

Predictions about the future path of the economy is one of the most important task that is assigned to the economists. The reason why we need to predict the future path of the economy is the fact that economic agents base their current decisions on the predicted future path of the economy. For example if prices are going to be increased in future, consumers can base their current decisions regarding consumption and saving. Similarly investors and people who buy and sell stocks are often interested in finding the future position of the economy so that they can decide whether to retain the stocks or to sell them. Government also is in the need to find the future status of the economy because it is responsible for maintaining macro equilibrium both in the internal and external fronts. At the same time it is also necessary to make necessary arrangements before time so that economic agents can adapt themselves towards changed economic environment in future.
Hence it becomes important to predict the direction in which the economy is heading forwards.

Rahul Sunny answered 1 year ago

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