Economic Health

Measuring Economic Health Memo

Eco/212

December 19, 2010

MEMORANDUM

TO:

FROM:

DATE: December 19, 2010

SUBJECT: Measuring Economic Health

In recent years the state of the economy is a heavily discussed topic. Understanding the factors that influence the economy is becoming increasingly important. Please review key pieces to understanding and analyzing current economic conditions.

Gross Domestic Product or GDP is the most accurate tool to measure a business cycle. GDP fluctuations can effectively show the expansion phase of the business cycle and the recession phase. During the expansion phase production, employment, and incomes increase [ (Hubbard & O'Brien, 2010) ]. As the economy enters a recession, these factors decline. Measuring when the economy goes into a recession or withdraws from one may take months. The data is collected and analyzed before a final determination is made.

The Federal Reserve is the central bank in the United States and is responsible for executing monetary policy. The Federal Reserve System has the power to influence credit, availability of money, and investing activities of depository institutions. The Board of Governors are made up of president appointed members. The Board determines general monetary, credit, and operating policies (Federal Reserve System, 2007/2008).

Unemployment and production is impacted by the fiscal policies set by our government. As interest rates fall and credit is readily available, more consumers are able to purchase goods and services. Demand for the goods and services increase. When interest rates start to rise or credit is not as readily available, consumers scale back their spending. Demand starts to fall, production decreases, and company’s scale back spending. Employers may start to lay off employees at this point.

Our government needs to spend money to keep our nation functioning. Money to cover spending is collected from taxpayers. Some of the government’s...