Measuring_Economic_Health

Measuring Economic Health Memo Rockefeller I. Hayag Economics 212 September 8, 2010 Caryn Callahan Measuring Economic Health Memo The economic status of any country can be measured by the gross domestic product (GDP). “The gross domestic product equates to the total market value of all final goods within a nations’ borders during a given period of time”. (Investopedia, 2010) Measuring the Business Cycle with the Gross Domestic Product (GDP) as a baseline reference point allows analysts a way to gauge where the economy is in regard to economic expansion, recession, and growth. The government has several agencies that institute the fiscal policies for the purpose of controlling and maintaining the economic condition of the country. The areas of the economy in which they govern and reinforce policy involve establishment of taxes and interest rates as well as the amount of government spending. “Answering to the Congress the Federal Reserve regulates the supply of money which helps control and keeps down inflation. The Federal Reserve Act sets forth the goals of monetary policy, specifically to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. Financial stability is an important prerequisite for achieving those goals. The Internal Revenue Service or IRS deals with the taxation of the citizens. The IRS is also in charge of setting up the sales taxes for goods and services taking place in America”. (Escobedo, 2009) Government agencies that control and impose policies affect the rate of production by optimizing the allocation and spending of funds. When corporations earn more money, it gives them the chance to hire more employees to work in meeting the consumer demands. The government can change its policies regarding budgetary policy that would establish current interest rates and taxes. The economy could suffer if the government changes fiscal policies too late or too early within the business cycle. Government investment in energy saving programs can positively influence employment by creating jobs and increasing production. Some people would think that military spending would cause a deficit in our country’s economy. We shouldn’t count the weapons manufactured for the military forces aside from the fact they do create jobs for the economy. The funding of military programs and deployment of service-members to foreign countries contribute to increasing taxes. The government also subsidizes certain programs that attract manufacturers and businesses. This causes a positive effect on the economy by increasing production and employment. It is noted that “At some level of spending, the impact of government expenditures on the production of goods and services is negative. Excessive government spending makes everybody poorer. However, it is important where the government spends tax dollars. Public investment on roads, ports, and bridges compliments private investment to improve economic productivity, though economic growth suffers when government diverts funds that could be more profitably used to hire workers or buy new machines”. (Garfield, 1995) Throughout each segment of a business cycle the government could predict and implement the best course of action by implementing fiscal policy and establishing the threshold for taxes. The goal of achieving a level of Gross Domestic Product (GDP) equilibrium would be a milestone. References Escobedo, P. (2009, May). What's so important about our Gross Domestic Policy. Retrieved from http://www.articlebase.com/finance-articles/whats-so-important-about-our-gross-domestic-policy-930093.html Garfield, R. (1995, March). Government Spending and Economic Growth. Retrieved from http://www.house.gove/jec/fiscal/budget/spending/spending.html Hubbard, R., & O'Brien, A. P. (2010). Economics (3rd ed.). Boston, MA: Prentice Hall. Investopedia. (2010). Investopedia Dictionary. Retrieved from http://www.investopedia.com/terms/g/gdp.asp