Certification in Supplier Diversity Practice Exam

What characterizes a lagging economic indicator?

1. It changes concurrently with the economy

2. It changes before the economy

3. It changes after the state of the general economy has changed

4. It remains constant regardless of economic changes

The correct answer is: It changes after the state of the general economy has changed

A lagging economic indicator is defined by its characteristic of changing after the overall state of the economy has shifted. This means that it provides insight into the economic trends and conditions only once these trends have already occurred. Generally, lagging indicators confirm the patterns observed in leading and coincident indicators, helping analysts understand the economy's past performance rather than predict its future direction. For instance, metrics such as unemployment rates or corporate profits often reflect changes in the economy after the fact. As these indicators respond to events that have already taken place, they can serve as a useful tool for evaluating economic health but do not typically assist in forecasting upcoming economic cycles. In contrast, indicators that change concurrently with the economy provide real-time data and those that change prior to economic shifts offer predictive insight. Constant indicators do not fluctuate based on economic conditions and do not provide any valuable information related to economic growth or contraction.