GDP and the Business Cycle Economic Health Memo Term Paper

gross domestic product and the Business Cycle Economic Health memorandum - Term Paper ExampleThe business cycle, forecastive statistics and giving medication policy are obviously each(prenominal) intertwined. GDP and the business cycle are closely tied together. But how much? Is GDP in reality cheeseparing at predicting the future of the market? And what do the commensurate fiscal policies do to the economy? GDP is different from GNP. GDP is the domestic product It is all the things and services that were produced domestically, no matter who owned them, correct if it was foreign tainters. GNP, meanwhile, is the amount held by the nation, including the value of its overseas investment. GDP is ab out the borders of the nation, GNP virtually the internal ownership. But both are used to predict the business cycle. GDP is designed to help firms reign un accreditedty (Roubini). By getting a feeling for how the whole economy is doing, business managers shadower take root whethe r or non to pursue risky policies or batten the hatches and wait for things to get better. In general, markets go through boom-bust cycles about every twenty years (Mead, 1992). Knowing how GDP is doing now helps to predict if were in a boom or a bust, which is important to the business cycle. However, GDPs value as an economic indicator, and therefore a predictor of the business cycle, is coming under attack now. Roubini, for example, points out that, The best advice I can give you is to realize that there is an unavoidable amount of uncertainty in the economy. This is even more line up of firms and their financial statements. So what do we do? My choice is to get out of this game altogether, provided not everyone has this option---a firm, for example, has to forge ahead the best it can. The first thing you should know is that theres a lot of uncertainty out there, and no amount of commercial forecasting is going to change that. Roubini is saying that GDP isnt ever for certain It can be determined one year then the same year can be revised a whole percentage point later Its hard to predict things like wars or terrorist attacks. In fact, GDP is very easy to game (Ritholtz, 2010). You simply under-report lump, and GDP appears to be better than it is. Since inflation depends on counting the value of a good last year, and doing so across many goods to unclutter sure that its not just one or two goods that grew in price for other reasons, theres a lot of subjectivity and uncertainty in making it. GDP is also not as assistive as it could be because it positively counts negative externalities (Ritholtz, 2010). That means that pollution, which is a bad thing, is counted as a good thing because it makes people spend money to go to the doctor or buy new houses to move. If you buy a car, the GDP goes up. If you cut a tree, the GDP goes up. But if you preserve the tree, the GDP does not grow. directly you have to decide whether you need the tree or the GDP (Sharm a, 2010). Thus, it is hard to use the GDP to predict the business cycle, and economists are looking for a better indicator of economic health. Fiscal policies are command by economic facts and by measures like the GDP As weve seen already, the GDPs inadequacies can cause lawmakers concerned only if with increasing the GDP to increase externalities such as injured workers, ecological damage and health cost as a byproduct, and not reap the consequences or even be aware of them. But what about fiscal policy and unemployment? The jury is out as to whether reducing or increasing taxes, reducing or increasing spending, etc. is better for production and employment. A major Heritage Foundation study finds that a large and growing government is not conducive to better economic performance. Indeed, reducing the size of government would lead to higher incomes and improve Americas competitiveness (Mitchell, 2005). Mitchell cites a Rahn curve, which says that theres a curve in tax tax income between 0 and 100%. The theory is simple If you tax 100% of income, no one produces anything but if you tax 0%, the government