Measuring_Economic_Health

As we have learned thus far in class, economics is like the circle of life from Disney’s The Lion King. “Everything you see exists together, in a delicate balance. As king, you need to understand that balance, and respect all the creatures; from the crawling ant to the leaping antelope. ” Each creature represents all the different variables that are in economics. The government is trying to become king, therefore trying to understand how everything is connected and maintained. A few key cogs in the economics machine are the Gross Domestic Product’s effects on the business cycle and the government bodies reacting with different policies. The Gross Domestic Product or the GDP is used to determine the economic health of a country. A simple formula would be GDP = C + G + B + EI. Where ‘C’ is all the private consumption, ‘G’ is the total amount of government spending. ‘B’ is the sum of all the country’s businesses spending on capital, and EX is the total of exports minus imports. The business cycle is what the economy is doing, if it’s growing, or expanding, the economy is doing well. If it’s in the middle of a recession, the economy needs help. These two things tend to go hand and hand, if the GDP is high then that country is expanding, if the GDP is low that country is experiencing a recession. The government handles a lot of different aspects of the country it governs, not to mention the economy. The United States’ Federal Reserve is the government body that is in charge of the different national fiscal policies. The Federal Reserve has a few different options when deciding what to do for the country. In a time when the GDP is too high, it can implement contractionary monetary policy. What the contractionary monetary policy does is it makes it harder to get money, whether it is by production or employment. The usual situation when this is in place is the inflation rate is out of control. The idea is the more money people have to spend the higher the prices will go, so if the citizens don’t have money the prices will go down, along with the inflation percentage. The Federal Reserve’s other option when deciding what to do for the country is Expansionary monetary policy. This would be done in a time when the GDP is too low, and needs a jump start out of the recession. The same principle is involved; the more money there is to spend the healthy the economy becomes. By having loan programs, businesses can afford to take out more loans to produce more. The added production needs to come from labor, so more jobs are available. Since there are more working people the jump start has been initiated. The Government has its hands full maintaining the balance between all the different variables. Lucky for the government though, they don’t have an evil brother that will throw them off a cliff into a stampede of wildebeests. But nonetheless, the government is playing a balancing act. When to implement which policy is crucial timing, if left unchecked the economy as we know it would become a disaster.