Economics

Measuring Economic Health Memo Fadi Fayad ECO/212 04/29/2010 Renee Tan Measuring Economic Health Memo Many people like to purchase new products for themselves or for their loved ones. A company's products are its revenue and the customer's expense. One good example is when someone goes to the paint shop and buys one gallon of paint for his/her house. This gallon of paint becomes the company's income and the buyer's expense. “Gross domestic product (GDP) is the market value of all final goods and services produced.” (Mankiw, 2007) Gross Domestic Product sums all possible expenditures such as consumption, net export, investment, and government purchases to measure the business cycle. For the Fiscal Policy, it works best when there are economic changes. “Fiscal policy also works with a lag, but unlike the lag in monetary policy, the lag in fiscal policy is largely attributable to the political process. In the United States, most changes in government spending and taxes must go through congressional committees in both the House and the Senate, be passed by both legislative bodies, and then be signed by the president. Completing this process can take months and, in some cases, years.” (Mankiw, 2007). When it comes to fiscal policy on the economy, it can have a negative affect or a positive affect on the employment rate. The big picture is that when taxes are cut, increase government spending, and generate demand for employment will decrease the unemployment rate, but when you do the opposite, it will increase the unemployment rate. “Because monetary and fiscal policy can shift the aggregate-demand curve, they can move an economy along the Phillips curve. Increases in the money supply, increases in government spending, or cuts in taxes expand aggregate demand and move the economy to a point on the Phillips curve with lower unemployment and higher inflation. Decreases in the money supply, cuts in government spending, or increases in taxes contract aggregate demand and move the economy to a point on the Phillips curve with lower inflation and higher unemployment. In this sense, the Phillips curve offers policymakers a menu of combinations of inflation and unemployment.” (mankiw, 2007) References Principles of Economics (Mankiw, 2007)