Measuring Economic Health

Measuring Economic Health

Debra Rodriguez

ECO/212 Principles of Economics

August 23, 2010

Professor Kalamogo Coulibaly

MEMORANDUM

To: Professor Kalamogo Coulibaly

From: Debra Rodriguez

Subject: Measuring Economic Health

Measuring Economic Health

The purpose of this memo is to address the following: 1) the use of Gross Domestic Product (GDP) in measuring the business cycle; 2) the roles of government bodies that determine the national fiscal policies; and 3) the effects of fiscal policies on the economy’s production and employment.

To understand the use of Gross Domestic Product (GDP) to measure the business cycle, one must first understand the meanings of GDP and business cycle.

The business cycle refers to the alternating periods of expansion and recession the United States economy experiences (Hubbard & O’Brien, 2010). An expansion in a business cycle is a period during which the economy experiences an increase in its total production and total employment. A recession in a business cycle is a period during which the economy experiences a decrease in its total production and total employment.

GDP refers to the market value of all final goods and services produced in a country during a period of time, typically one year (Hubbard & O’Brien, 2010). GDP measures market values (not quantities) of final goods and services in production during an indicated time period. Economist use GDP to measure total production in the economy by measuring the total income of all individuals in the economy and total expenditure on the economy’s output of goods and services. When a country sees a rise in GDP, there is an expansion in its business cycle. When a country sees a decline in GDP, there is a recession in its business cycle.

A fiscal policy refers to changes in federal taxes and purchases intended to achieve macroeconomic policy objectives that maximize employment, stabilize prices, and produce a high rate of...