Economic Indicators: Explanation of the Lightweight Vehicle Sales and the S&P 500 Stock Index in the Formulation of the Nation's Monetary Policy
To formulate the nation's monetary police, the Federal Reserve (Fed) considers several factors, including: the real gross domestic product (GDP), the consumer price index (CPI), non-farm payroll employment, housing starts, industrial production/ capacity utilization, retail sales, business sales and inventories, advance durable goods shipments (new orders and unfilled orders), lightweight vehicle sales, yield on 10-year Treasury Bond, the Standard and Poors (S&P) 500 Stock Index, and M2, in addition to anecdotal information from the Beige Book. (Federal Reserve Bank of New York, 2005). In order to understand how the Fed formulates monetary policy, one must understand how each of these factors contributes to an understanding of monetary policy. In this paper, the role of both lightweight vehicle sales and the S&P 500 stock index in the formulation of the nation's monetary policy will be explained. The S&P 500 is "one of several indices designed to measure changes in price of a broad array of
Lightweight vehicle sales refers to "total unit sales and leases of domestic and imported new automobiles and light-weight trucks (up to 10,000 pounds gross vehicle weight). Includes sales and leases to both consumers and businesses." (Federal Reserve Bank of New York, 2005). The reason that lightweight vehicle sales are considered an important economic indicator is that, even though they are only a small part of the economy, changes in lightweight vehicle sales are highly correlated with changes in the rate of growth of the gross domestic product (GDP). GDP refers to the total value of goods and services intended for the consumer, which are produced within a country in a year. In addition, like the GDP, lightweight vehicle sales do not indicate sustainable growth or sustainable economic trends, but indicate short-term trends. However, by watching the trends in lightweight vehicle sales, economic analysts can get a feel for weather the economy is improving or declining. Lightweight vehicle sa
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Approximate Word count = 677
Approximate Pages = 3 (250 words per page double spaced)
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