Measuring_Economic_Health

. . . . . . Measuring economic health Daniel Pena, Eco/212 November 17, 2010 . Alex Longoria . . . . . . . . . . . . . . . . . . . According to Hubbard and O'Brien (2010), The GDP in the United States rises at a relatively steady rate of 3.5 percent. The curve is a representation of the fluctuation in the market and spending. The GDP is used as a baseline for production in the United States. However, GDP is not a totally accurate method because it does not measure companies abroad. The GDP is measured once a year, which is fairly accurate for the long run. Daily, weekly, and monthly fluctuations are measured in the market and these fluctuations are what create the Business Cycle. When looking at the business cycle, it is simple to see that the GDP rises at the constant rate of 3.5 percent. The fluctuations in the curves are created by expansions and recessions. When the curve is increasing there is an expansion and when decreasing it is in recession. In our model between one and two there is an expansion and between two and three there is a ressesion (Hubbard & O'Brien, 2010). The Primary function of government policy is to decrease the mass fluctuation created by the business cycle. In the model above, it can be seen that with proper policy, the harshness of the business cycle have been softened. Most of these actions are automatic such as in the form of progressive taxation and unemployment insurance. Progressive taxation infers that the more she makes, the more she will pay in taxes thereby decreasing the amount of instant goods and services she can purchase, the same is also true if her income if it were to decrease. The less she makes, the less in taxes she pays and therefore her spending is not decreased as much as if she had to maintain the same amount of taxes. Unemployment insurance also works in a similar fashion. If she were to become unemployed then there is a protection that she can gain by application that will provide her with an income while she is looking for new employment, in that way she is protected from losing all purchasing power. The government can be very beneficial and influential. By increasing or decreasing interest rates the government can control spending. When the government increases interest rates, households are more likely to increase saving and decrease spending. However, firms are more likely to reduce spending and expansion. Therefore, the government must be very careful when imposing fiscal policy. References Hubbard, R. and O’brien, A. (2010) Economics (3rd ed.). Boston, MA: Pearson Hall. ----------------------- [pic]