Fiscal Policy, Monetary Policy, and a Healthy Gross Domestic Product

Economic Health/Fiscal Policies and Federal Reserve/Monetary Policies Paper

Understanding Gross Domestic product is central for understanding the business cycle and the progression of long-run economic growth (Hubbard & O’Brien, 2011, p. 631). The GDP is defined as the value-added of all goods and services produced in a given period of time within the United States (2008). The GDP is widely used as an gauge economic wellness and health of the country. What the GDP represents has a hefty impact on nearly everyone within our economy. As an example, when the economy is healthy, you will usually see wage increases and low unemployment as businesses demand labor to meet the increasing economy. The government has two types of economic policies used to control and maintain a healthy economy, fiscal policy and monetary policy. When economic growth is healthy it will have a positive on both individuals and businesses.

The Use of the GDP to Measure the Business Cycle

The fluctuations of economic growth are known as the business cycle. The GDP is a useful indication and measurement of the fluctuations of economic contractions. The measurement of GDP can be approached from three angles: value added by industry, final expenditures, and factor incomes (2008). The first angle measures the value added created by industry; the output less and inputs purchased from other producers. The second angle measures expenditures by consumers, businesses on investment goods, government on services and goods, and foreigners for exports; minus expenditures by domestic residents on imports. The last angle measures incomes generated in production, operating surplus generated by business and compensation of employees (2008). The GDP does not remai...

... middle of paper ...

...om/doc/1G2-3401801494.html

"Gross Domestic Product." International Encyclopedia of the Social Sciences. 2008. Retrieved January 09, 2012 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3045300969.html

"Money." Dictionary of American History. 2003. Retrieved January 09, 2012 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3401802723.html

Arestis, P., & Sawyer, M. (2010). The return of fiscal policy. Journal Of Post Keynesian Economics, 32(3), 327-346. .

Board of Governers of the Federal Reserve System. (n.d). Retrieved from http://www.federalreserve.gov/monetarypolicy/default.htm

Hubbard, R. G., & O'Brien, A. P. (2010). Economics (3rd ed.). Boston, MA: Pearson Hall.

Poole W. The monetary policy model. Business Economics [serial online]. October 2006;41(4):7-10. Available from: EconLit with Full Text, Ipswich, MA. Accessed January 10, 2012.