GDP to measure the business cycle:
‘Gross Domestic Products’ affects the American business cycle, and keeps equilibrium in our economy. GDP measures two things to help in stabilizing our economy. The economy’s income and expenditure, these two tactics are used simultaneously in measuring the annual household income and how much each household spends on goods; this is a continuously repeated cycle in the flow of money that keeps the equality to an equilibrium. The flow of income and expenditure must equal for the economy to become a whole.
How this works is income is the same as expenditure for every transaction there is two parties, the seller and the buyer, when a buyer spends a dollar this becomes a dollar income for a seller. For instance Jane Doe spends $100 on for pool service to the seller John Doe for services rendered, this raises the economy of the business cycle $100. (Mankiw, 2004)
Within the business cycle of economics the services paid for by consumers relate largely to the GDP flow of economy. The dollars spent by consumers flow through the market of production within a business, this allows for paying the wages for labors, fixed costs such as electricity, water , gas, and equipment. The fixed assets that are paid are also used to pay for the labor wages of these businesses. Once the labor wages are paid the recipients go out in the market and purchase more goods that contribute to the economical flow of income and expenditure, which in return contributes to a Gross Domestic Production flow in the business world. (Mankiw, 2004)
Describe the roles of Government bodies that determine National Fiscal Policies:
The knowledge of the governmental roles played in planning of our economical system is very confusing and very over whelming too many Americans. Most citizens don’t understand economics enough to know that the Government has several bodies that are critical too measuring the economical health of America, and managing your money. (Tan, 2009)
Within these bodies are the Economists, Ministry of Trade/Commerce, Federal Reserve and many other bodies both government and non-government, that are always forecasting the future for any negative or positive development to better prepared.
There are five areas of most concern watched regularly by bodies of Government and non-government officials:
a) Leading Economic Indicators’ Index: On a monthly basis the U.S. Conference Board will release a set of economic indicators index’s that are reported to various media so economists will be aware of the situation. This will allow the layman to understand the overall health of the economy. So if there are three consecutive increases in the Index it is a positive state of the economy, just the opposite will show a negative balance in the state of economy.
b) Unemployment figures: When economists and politicians look at unemployment they will see it from two separate angles, the rise in unemployment insurance claims and a decline in claims. Both are can be an effective outcome of the economy, when there is a rise in unemployment insurance claims this is a danger signal to economists. But on the other hand a low rate of claims may carry the potential for higher inflation.
c) Durable Goods: This shows an increasing demand in goods to show the economy to be strongly expanding, and a possible backlog of orders.
d) Housing Starts: The economy will measure the health of the housing industry by how many permits are issued, but an over abundance of in new housing will cause a major deficit on the economy.
e) New Factory Orders: This is watched by economist and citizens to show a trigger in the economical growth or decline of gross domestic products. As any layman would know that an increase would show a positive economy, and just the opposite a falling demand would indicate a deficit in the economy. (Tan, 2009)
How do changes in government spending and taxes positively or negatively impact the economy’s production and employment?
Between 1980 -2000’s fiscal years studies were performed to determine where the most economical impact on state taxes of production and employment come from, all economic growth can be attributed to government spending. It has been determined that a variable shift in government spend away from goods and services and more toward the federal grant system, taking away from the state capita causes a decrease in state economical tax growth and also affects employment.
Another affect towards state employment are state and federal fiscal policies of economies. States with significantly larger shares of federal related dollars towards defense have a greater impact on state and federal taxes; defense will also have a negative per capita output and a higher unemployment rate. When both state and federal government spending in increase will allow for an increase not only in state output but also a lower tax cut will have a more positive outcome one the employment rate. (Canto, 1987; Grossman, 1990; Tomljaqmovich, 2004; Weber, 2000)