Assignment 2: Measuring Economic Health

500 Words2 Pages
Measuring Economic Health L. Whittler Eco/212 July 19, 2010 Francisco Penafiel Measuring Economic Health Peaks, contractions, trough, and expansion are the parts that make up the business cycle. GPD measure the business cycle so the matters the most. The high points are peaks and the low point troughs. The period that lies in between economists would call a recession or contraction. Considered periods of declining GDP, Recessions lasts at least six months or two quarters and very serious recession are thought of as depression. GDP does not remain constant and over time will change for economic and non- economic reasons. Some of the economic reasons are changes in government policies such as taxes and interest rates. War, drought, natural…show more content…
Fiscal Policy captures the changes in taxes and government spending. In the United States, the president, and Congress make these decisions. Because of its ability to affect the total amount of output produced (GDP), Fiscal policy is an important tool for managing the economy. Its ability to affect the total amount of output produced raising the demand for goods and services is the first impact of a fiscal expansion and this increased demand leads to increases in output and prices. The level to which higher demand increases output and prices depends on the state of the business cycle. Without changing the price level will lead to an increase in demand if the economy is in recession. A fiscal expansion will have more of an effect on prices and less impact on total output if the economy is at full employment. To restore output during a recession the government can run an expansionary fiscal policy helping to restore and to return the unemployed to work. The government can run a budget surplus; this will help to slow the economy when inflation seems to be a larger dilemma than unemployment, leading to a budget balanced on

More about Assignment 2: Measuring Economic Health

Open Document