Final answer:
Business fixed investment is a leading indicator as it predicts future economic activities, influenced by businesses' expectations of future profits and economic growth trends.
Step-by-step explanation:
The variable business fixed investment is typically categorized as a leading indicator. This is because changes in business investment can indicate future economic activity, as businesses tend to invest more when they are confident in future growth prospects. For instance, during the late 1990s in the United States, the rise in business investment was partly driven by new technologies, which led to a substantial increase in such investments and ultimately to a higher trade deficit. However, this trend reversed when a recession hit in the early 2000s, causing these investment levels to decrease again.
Expectations of future profits greatly influence business investment levels. When businesses anticipate economic growth, they perceive a larger market for their products and are incentivized to invest in expanding production capabilities or improving operational efficiencies through new equipment or technology.