Measuring Economic Health Memo

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Subject Measuring Economic Health Memo

How GDP is used to measure business cycle

Business cycles are economic fluctuations . Business cycle phases include the recession , depression , growth , and boom . Recession and depression phases are characterized by low production , decrease in investments decrease in GDP , and increase of unemployment . Economic fluctuations correspond to business changes . Growth and boom phases are characterized by growth in GDP , increase in employment and investments-economic indicators are desirable . GDP is one of the economic indicators that are used to

determine at which business cycle phase an economy is at and is heading to . GDP is usually used to monitor short-run changes in the economy since it is the most comprehensive measure of economic activity It measures goods and services produced within a country at a specified period , usually one year . Growth in GDP leads to increase in per capita income . When per capita income increases economic agents ' purchasing power will increase . This will increase demand for goods and services in the market . Increase in demand is a great relief to the business . In case the GDP falls , it means that per capita income will reduce the economic agents will have tight budget constraints , decrease their consumption which will affect demand for goods and services . This will adversely affect the business operations . Investments are likely to reduce and many businesses quit from operations (Mankiw 2008

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Role of Government bodies that Determine national fiscal policies

Government bodies that determine national fiscal policies has...