Posted: November 29th, 2013
Measuring Economic Health
Measuring Economic Health
Economics is the study of production, allocation and consumption of goods and services in either a household or industry at large. The economy of a country plays a vital role in knowing how the development process will advance. The economic health of a country should therefore, be monitored to ensure that the country does not go into a recession. The indicators of a country’s economic health are; interest rates, wealth distribution, per capita income, inflation rates, unemployment levels, balance of payment and gross domestic product or gross national product. The government studies these indicators in order to make sure its country’s economic health is excellent (Henderson, 2008).
Gross Domestic Product (G.D.P) is the market value of all the goods produced within a country in a given year. Business cycle refers to fluctuations that take place in the economy over a certain period. The rate at which G.D.P increases or decreases helps to measure business cycles. When the G.D.P of a country increases, the business cycle is going to go through an expansion. When the G.D.P declines, the business cycle is then going to go through a recession. Thus, G.D.P and business cycles have a direct correlation to each other (Rittenberg, Tregarthen & Mikalson, 2011).
Various government bodies determine the national fiscal policies that a country decides to take how they are implemented and maintained. The Treasury department, which is in charge of government spending, administers and creates fiscal policies. It ensures that the policies are implemented as per how they were constructed. The Management and Budget Office assist the treasury department to conduct inquiries regarding the needs of the citizens of that country. They do this by providing information necessary in decision-making and then implement the new policies that are needed. The office of the president has the final say in the national fiscal policies that are implemented in a country. To ensure that the policies will help in a country the government accountability office audits it. It makes sure that the fiscal policies are up to par with the country’s development policies.
Interest rates and Taxation are fiscal policies that affect production and employment respectively. Change in interest rates affects money supply in an economy. If interest rates are increased on loans are increased, it means that less people will take out loans but when thus reducing the money supply in the economy. When interest rates are reduced, money supply increases. Tax reduces an individual’s disposable income and thus affects employment. A decrease in tax affects may lead to an increase in employment opportunities. Increase in tax, on the other hand, is viewed by citizens as a form of punishment discouraging people from paying tax. This is because they prefer being paid under the table.
Government spending and taxes affect the economy’s production and employment. This is because when the government spending increases and taxes reduce, it results in an increase in money supply. This is because the government pays for part of the consumer’s expenditure through subsidies and there are fewer taxes to be paid. The negative side of fiscal policies can be felt when the government spending is reduced, and taxation is increased. This will in turn result in the consumer paying more for the basic commodities that he or she might need. Therefore, the economic health of a country is determined by the fiscal policies that a government may choose to employ.
Rittenberg, L., Tregarthen, T. D., & Mikalson, B. (2011). Principles of macroeconomics version 1.1.1. Irvington, NY: Flatworld Knowledge.
Henderson, D. R. (2008). The concise encyclopedia of economics. Indianapolis, Ind: Liberty Fund.
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