Measuring_Economic_Health_Memo

MEASURING ECONOMIC HEALTH MEMO Pg.1 MEASURING ECONOMIC HEALTH MEMO ECO/212 JULY 11, 2011 RHONDA HOFFMAN PROFESSOR ROBERT COATES Pg. 2 In order to describe the use of Gross Domestic Product to measure the business cycle, you must know what Gross Domestic Product means. GDP is the value of all final goods and services produced in an economy during a period of time. The main purpose of GDP is to measure a country’s total production. When a country’s GDP increases, the country has more goods and service but those goods and services may be very unequally distributed, therefore, GDP may not provide good information about the goods and services consumed by the typical person. (Hubbard, R. & O’Brien, A.) (2010). Pgs. 5 & 15. The roles of government bodies that determine national fiscal polices are: Department of Treasury- Manages and constructs the fiscal policy; Implementation of fiscal policy. Office and Management of Budget- development and analysis of fiscal policy; Office of the President of the United States- Decision making of fiscal policy; Government Accountability Office- audits the fiscal policy.(http://www.yahooanswers.com). Fiscal policies effects individual behavior as well as decision making from business to households. A change in tax schedule directly effects cost of production and the bottom-line for corporations or individuals net income. Pg.3 Increases in taxes means reduction in income and fewer workers. Decrease in taxes means higher income and more workers. Changes in taxation policies as a part of the fiscal monetary policy have adverse effects on employment markets and on efficiency and productivity. Another component of the fiscal policy is the interest rates. Adjusting the interest rates can have a negative or positive impact on production. Changes in the interest rates changes the velocity of “cash flow”, meaning when interest rates rise, cash flow becomes limited and credit tightens up, when that happens monetary expansion becomes limited and production decreases.(http://www.wiki.answers.com). In conclusion, we may say that a person’s well-being depends on many factors that are not considered in calculating GDP. Because GDP is designed to measure total production it should not be surprising that it does an imperfect job of measuring well-being. (ch.19, pg.15).