Measuring Economic Health Windows - Essay Example

Measuring Economic Health Windows Gross domestic product (GDP) refers to the measure of the total goods and service inputin an economy at a given time. In GDP, the goods and services are usually valued at their market prices. It provides a base for measuring the value of production that nearly equals the total expenditure of the goods and the total income. GDP is usually used to measure and explain common changes in the business cycle such as the occurrence of peaks, troughs, contractions, and expansions.

A business cycle is mainly a cycle illustrating GDP growth and contraction in an economy. At peaks, which signify a rise in the economy, GDP is usually high as a result of increase in productivity (Anderson, 2002). On the other hand, a trough is a low point that signifies a dropping economy due to a decrease in the GDP. Subsequently, between a peak and a trough is period normally referred to as contraction. A contraction symbolizes a period of recession within an economy mainly as a result of a continuous decline of GDP for a period exceeding six months.

On the contrary, the period between a trough and peak in that order, is usually described as an expansion. Expansion symbolizes a steady increase in GDP that shows that an economy is experiencing significant growth (Anderson, 2002). Fiscal policy entails managing government spending and taxes to induce certain desirable changes in overall spending by consumers and firms within a country. The federal government oversees the drafting and implementation of the policy through various bodies under its jurisdiction.

One of the main bodies involved in the process is the treasury department, which is charged with managing and designing of the policy in terms of managing the government’s accounts. The treasury usually provides crucial information regarding the source of revenue for the economy, the amount available for government spending, as well as the main areas that require funding. Subsequently, there is a management and budgeting office of the federal government that is mandated to draft and consequently analyze the policy (Anderson, 2002).

The office works in conjunction with the treasury department providing data and relevant information to the treasury on which a proper decision could be made. Following the proposal and approval of the fiscal policy by the treasury, another government body known as the government accountability office takes over, and mainly acts to perform an audit of the policy. The audit provides information regarding any issues in the proposed policy before approving and presenting the policy to the office of the president for assenting.

Fiscal expansionary policy is mainly as a result of an increase in the overall demand of an economy that tends to trigger production growth. With government increasing expenditure as outlined in a fiscal policy through improving infrastructure and other social services, an increase in demand of goods and service from the market is usually expected. As a result, most producers in the economy will respond to the increasing demand by increasing their production. Moreover, an increase in government spending and subsequent lowering of taxation will channel some funds into back into the economy resulting in an increase in public spending and the need to increase production.

Producers will seek to hire more employees in the bid to meet the rising demand leading to a general increase in employment levels. On the contrary, an increase in taxation and subsequent low government spending may imply a decrease in disposable income. This may translate to a possible decrease in public spending leading to a contraction of the economy. As a result, most producers will also have to lower their costs even if it will imply lying off workers. In general, there will be a decrease in the level of employment.

References Anderson, L. (2002). Gross Domestic Product. Retrieved May 6, 2013, from The Concise Encyclopedia of Economics: http://www.econlib.org/library/Enc1/GrossDomesticProduct.html