Question

"The Dow Jones Industrial Average is the best indicator of how well the U.S. economy is doing" Do you agree or disagree with this statement? Explain why or why not.

Answer 1

The Dow jones is widely followed across US and it is calculated by a simple method of mathematical averages.It is the best known index.It was started in the year 1896.The name industrial is historical related as most of the stocks dont belong to the manufacturing industries but rather from all the major sectors except utilities and transportation.They have house hold names such as the following coca cola,MCdonalds etc..The components in this do not change very often as it takes an important change in the company for it to be removed from index.when the index comes up then it can be repalced by more than a company at a time.It is price weighted.This is used by the investors to determine the stock markets trend.while the negative of Dow is that just like an average index its good as sum of its parts.You cannot paint an actual picture of how an economy is functioning.The bottom line is that the stock market and economy are both incredibly complex its impossible to determine with just a number but dow does just that.Apart from the negatives it’s widely used by economists and financial institutions around the world and its likely to stay as the best indicator in USA.Despite its functions it is far from the market that regular reports and tracks.