Memo
To: Kunsoo Paul Choi, Ph.D.
From: Lola Rodriguez
Date: 5/22/2012
Re: Measuring Economic Health
GDP and Measuring the Business Cycle
Gross domestic product (GDP) is defined as one of the main indicators that economists use to measure the economy of a country (Hubbard & O’Brien, 2010). The GDP represents the total dollar value of all services and goods that a country produces over a particular period of time. Although it is used to gauge an economy’s health, it cannot be viewed as the size of the same economy as there are other factors that must be considered. Economists use GDP to compare the previous fiscal period with the current one. As an example, if the GDP for this quarter is up by 2%, then this means that the economy has grown by that percentage over the last quarter. An increase in the GDP signifies economic growth, a decrease means that the country is in a recession. Roles of Government Bodies that Determine National Fiscal Policies There are four sections of government in the United States that are involved in determining national fiscal policies. They are: the Department of Treasury, the Office of Management and Budget, the Office of Government Accountability, and the Office of the President (Hubbard & O’Brien, 2010). The Department of Treasury designs and manages the fiscal policy. This office determines what the budget is, what monies need to be spent, and what the country’s income is. This body of government is also responsible for implementing new policies. This agency, however, does not act alone as the U.S. government functions under the basis of a system of checks and balances. The Office of Management and Budget develops and analyzes fiscal policies. It works side-by-side with the Department of Treasury with doing the necessary research that determines what the country needs. This body of government provides the Treasury with the necessary information to decide and implement new needed policies. Consistent with the system of checks and balances, the Government Accountability Office performs audits on fiscal policies. This section of government studies proposed and current policies. They are responsible for looking for discrepancies or issues that interfere with the proper implementation by the Treasury of all policies. The Office of the President is involved in the decision-making process of fiscal policy. The President, as the leader of the country, can propose changes to the policy as well as reject changes that in his opinion will have a negative effect with the needs of the country’s economy.
Effects of Fiscal Policies on the Economy’s Production and Employment Decisions on Fiscal policy affect everything from bodies of government to the daily decisions of individual consumers and businesses. If government spending is properly handled and overseen, it can have a positive impact on the economy (Hubbard & O’Brien, 2010). If the government spends money on building highways, education, manufacturing, and other avenues that keep Americans working, then the unemployment rate decreases and the economy is stimulated. If the government implements policies that result in government spending outside of the United States, then the national unemployment rate increases and the economy suffers a decline. With regard to taxation, however, if the government offers tax cuts, consumers and/or business are provided with incentive to purchase more products and services (individuals), and to produce more goods and services (businesses). This can also stimulate the economy, depending on the details of the tax cut and the people that it affects. The opposite will happen if there is a tax increase for business and/or individuals. References
Hubbard, R., & O’Brien, A. (2010). . In P. Hall (Ed.), Economics (3 ed., ). Retrieved from https://portal.phoenix.edu/classroom/coursematerials/eco_212/20120124