The problem with common people in understanding the macroeconomic concepts embedded in the budget and other political claims of the government is their lack of understanding of the basic concepts affecting their lives. Try to understand this:
When there is inflation, there is price hike of even the basic necessities like food and clothing. Inflation is triggered by real or engineered shortage of basic commodities and production inputs like wheat, electricity etc. This can be cured through many ways but someone has to keep a watchful eye on gross domestic product (GDP). If it falls, it spells disaster for economy and triggers inflation and recession. The Inflation and GDP are, therefore, closely related. Please read the following taken from http://www.investopedia.com
Many investors, especially those who invest primarily in fixed-income securities, are concerned about inflation. Current inflation, how strong it is, and what it could be in the future are all vital in determining prevailing interest rates and investing strategies.
There are several indicators that focus on inflationary pressure. The most notable in this group are the Producer Price Index (PPI) and the Consumer Price Index (CPI ). The PPI comes out first in any reporting month, so many investors will use the PPI to try and predict the upcoming CPI . There is a proven statistical relationship between the two, as economic theory suggests that if producers of goods are forced to pay more in production, some portion of the price increase will be passed on to consumers. Each index is derived independently, but both are released by the Bureau of Labor Statistics. Other key inflationary indicators include the levels and growth rates of the money supply and the Employment Cost Index (ECI). (To learn more, read The Consumer Price Index: A Friend To Investors
There are several indicators that focus on inflationary pressure. The most notable in this group are the Producer Price Index (PPI) and the Consumer Price Index (
The gross domestic product(GDP ) may be the most important indicator out there, especially to equity investors who are focused on corporate profit growth. Because GDP represents the sum of what our economy is producing, its growth rate is targeted to be in certain ranges; if the numbers start to fall outside those ranges, fear of inflation or recession will grow in the markets. To get ahead of this fear, many people will follow the monthly indicators that can shed some light on the quarterly GDP report. Capital goods shipments from the Factory Orders Report is used to calculate producers' durable equipment orders within the GDP report. Indicators such as retail sales and current account balances are also used in the computations of GDP , so their release helps to complete part of the economic puzzle prior to the quarterly GDP release. (For related reading, see The Importance Of Inflation And GDP and Understanding the Current Account In The Balance Of Payments.)
Other indicators that aren't part of the actual calculations forGDP are still valuable for their predictive abilities - metrics such as wholesale inventories, th "beige book", the Purchasing Managers' Index (PMI) and the Labor Report all shed light on how well our economy is functioning. With the assistance of all this monthly data, GDP estimates will begin to tighten up as the component data slowly gets released throughout the quarter; by the time the actual GDP report is released, there will be a general consensus of the figure. If the actual results deviate much from the estimates, the markets will move, often with high volatility. If the number falls right into the middle of the expected range, then the markets and investors can collectively pat themselves on the back and let prevailing investing trends continue.
Other indicators that aren't part of the actual calculations for
