Gross Domestic Product
1 Describe the use of Gross Domestic Product (GDP) to measure the business cycle.
The gross domestic product (GDP) is a business term usually used to refer to the total production that a nation has achieved in terms of goods and services. It is used as a summary of the economic statistics that entail a particular nation. It is used to measure the business cycle, as it comprises the information that is entailed in national governments monthly, quarterly, and annual data from the respective ministries. The total data that is collected during the governments’ fiscal year comprises mainly of the consumer price index (CPI), the employment report on the figures pertaining to public and private employment records, and summaries of corporate and individual tax returns (Mankiw, 2008). The above data is used by the national government to come up with the National Income and Product Accounts. This document is the one that is usually used to calculate the national gross domestic product.
2 Describe the roles of government bodies that determine national fiscal policies
The government comprises of various ministries and agencies that create and execute the national policies that help in controlling the economy of the nation. These roles include the collection of tax and other revenues, and the stabilization of the national economy (Mankiw, 2008). The various bodies and their roles are the Internal Revenue Service or IRS that is charged with the role collecting taxes and revenues within the nation. These roles enable the government to come up with fiscal policies that are aimed at controlling the national economy through the collection of tax and rates and the regulation of government spending. The government outlines the national fiscal policies by determining the amount of money to circulate in an effort to curb inflation. The roles that set up the Federal Reserve dictate policies concerning monetary policy. These policies are aimed at influencing the creation of more employment opportunities, the moderation of prices and the setting of standardized long-term interest rates.
3 Explain the effects of fiscal policies on the economy’s production and employment.
The fiscal policies that are created and implemented by the government affect the production and employment of a given nation in several ways. A change in the taxation rates will directly affect the production amounts and rates that a given country experiences. If the government decides to increase, the taxation rates for thee given country, the tax rates will be reflected on, the production expenses of a given company and therefore result in decreased production rates. If the government on the other hand attempts to decrease the taxation rates, the decreased taxes will reflect on the company’s records as decreased production cost and thus resulting into increased production rates. This is because taxation ends up influencing the cost of production directly. An increase in taxation will decrease the individual income and indirectly result to decreased employment. A decrease in taxation on the other hand will end up causing an increase in the individual income and facilitate increased employment.
Another fiscal policy that is implemented by the government on the economy is interest rates. Changes in the interest rates evident in a country end up having effects on the production and employment economies of a given country. The government may hike the interest rates in a country as a means to curtail inflation. This has the effect of decreasing the amount of money circulating. This ends up in decreasing the monetary expansion and the subsequent decrease in production and employment. An increase on the interest rates of a given country will end up increasing the amount of cash in circulation and the expansion of credit rates. This has the effect of increasing the employment in the respective nation and a subsequent increase in production World Bank, 2004).
References
Mankiw, N. G. (2008). Principles of economics. Farmington, MI: Cengage Learning.
World Bank. (2004). World development indicators. Los Angeles, CA: World Bank Publications.
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