Businessmen have to form guesses about the future in making their investment and production decisions.
If they anticipate a depression next year, they would reduce inventory now. On the contrary, if they expect price rise, they might hasten today to buy goods in advance and to add to equipment and plant.
Similarly, speculators would like to know the future in order to be able to buy or sell common stocks and make a profit. Statisticians and economists cannot yet make accurate forecasts.
Image Source: dralanrae.files.wordpress.com
ADVERTISEMENTS:
Forecasting is still inexact their anticipations occasionally turn out to be quite wrong. Nevertheless people insist that they do their best because lack of any forecast usually itself involves an implicit forecast. The forecasters use the following methods:
1. Those with the best long run batting averages follow national income and related statistics very closely. The most important indicator of the current state of an economy is the GNP.
The forecasters also watch monthly data such as price indices, changes in the rate of growth of the money supply, reports on unemployment and job totals. In addition, they watch many diverse statistics as they become available such as weekly department-store sales, chain-store sales or monthly mail-order sales etc.
ADVERTISEMENTS:
2. The forecaster can study various surveys of future events; the Indian Trade Journal (weekly), and Reserve Bank of India Bulletin provide clues to investment intentions. The attitudes reported by purchasing agents are important for inventories.
3. Many forecasters then try to draw up “C+I+G type models” to make approximate guesses about future changes. They try to come out with a range of probable answers, not with a single accurate answer.
4. Some reinforce these guesses by considering whether most time series are going up or down. Experience shows that economic forecasts are indispensable for public and business decisions. Economists’ forecasts, although not infallible, average out to be more accurate than those of simple extrapolates of present trends.
The business cycle has not been completely made a thing of the past but it has been tamed. Although mixed economies are unlikely to experience old-fashioned prolonged depressions ever again, recessions, will no doubt still occur even though fiscal and monetary policies can moderate their frequency, intensity and duration.