Measuring Economic Health: Gross Domestic Product

Gross domestic product (GDP) is the general worth of money of all refined goods and services within the boundaries of a given country in a certain time frame. The gross domestic product is customarily calculated per annum which helps in the verification of the economic well being of a given country and gauging the living conditions of a nation This essay explores the use of GDP in measuring business cycle, the roles of government bodies in determining national fiscal policies and the effects of fiscal policies on employment and the production of the economy (Brezina, 2012).

Gross domestic product is used in measuring the business cycle. The business cycle refers to the expansion and recession of business activities in a given country within a given time frame. A country’s financial system normally goes through an episode of fluctuations in the GDP. The economy is said to be in expansion when the GDP rises and in recession when the GDP falls. When the period of expansion reaches the end, the GDP begins to fall. The phase when expansion concludes and recession commences is referred to as the peak period of the business cycle. On the other hand, the period when the recession concludes, and expansion commences is identified as the period of depression in the cycle of the business. The rise and fall of the overall value of refined goods and services are used in the determination of the different stages of the business cycle in the economy. The higher the value of the GDP, the better the health of the economy of a nation (Brezina, 2012).

The government plays a big role in determining national fiscal policies. Fiscal policy is the use of the expenditure and the revenue of the government to influence the economy. The roles are shared among different government bodies, including the treasury, management and budget office, the office of the president, and the government accountability office. The treasury is responsible for managing, designing, and implementing fiscal policies. The office of management and budget is in charge of enhancing and inspecting monetary policies. Moreover, the management office also does a lot of research in order to provide the treasury with proper information to make the right decision regarding fiscal policies. The president’s office is responsible for recommending alterations in the policy and also declining changes in the event that they do not match up with prevailing needs. Finally, the accountability office has the role of auditing of the national fiscal policies.

Fiscal policies also affect the production of the economy and employment. Fiscal policy is an essential tool used in the management of the economy. The policy is capable of shaping the overall quantity of economic production in a country. A fiscal extension amounts to the escalation in demand for goods and services hence increase in both yield and costs. The degree in which advanced demand leads to the rise in costs and yield depends on the trade cycle (Weil, 2008). For instance, when the economy is undergoing a recession, the increase in demand leads to more economical production with an unchanging price. When the employment rate is high, fiscal expansion is likely to have a larger impact on prices and less on total economic production. Furthermore, the effect of fiscal policy on production and demand enhances economic stability. During the recession, the government can opt for fiscal expansion in order to normalize output and ensure workers are back in their jobs (Weil, 2008).

The measurement of economic health is very important. The measurement helps in determining whether the economy is growing or declining. The information gathered through the measurement of the economy will enable the government to put in place measures and policies to improve the economy in case it is declining and to maintain it in case it is on a good track.

Reference List

Brezina, C. (2012). Understanding the Gross Domestic Product and the Gross National Product. Newyork: The Rosen Publishing Group.

Weil, D. (2008). The Concise Encyclopedia of Economics:Fiscal Policy. Web.