StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

GDP and the Business Cycle Economic Health Memo - Term Paper Example

Cite this document
Summary
The business cycle, predictive statistics and government policy are obviously all intertwined. GDP and the business cycle are closely tied together. But how much? Is GDP actually good at predicting the future of the market?…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.9% of users find it useful
GDP and the Business Cycle Economic Health Memo
Read Text Preview

Extract of sample "GDP and the Business Cycle Economic Health Memo"

Download file to see previous pages

The business cycle, predictive statistics and government policy are obviously all intertwined. GDP and the business cycle are closely tied together. But how much? Is GDP actually good 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, even if it was foreign buyers. GNP, meanwhile, is the amount held by the nation, including the value of its overseas investment.

GDP is about the borders of the nation, GNP about the national ownership. But both are used to predict the business cycle. GDP is designed to help firms manage uncertainty (Roubini). By getting a feeling for how the whole economy is doing, business managers can decide whether or not 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 we're in a boom or a bust, which is important to the business cycle.

However, GDP's 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 true of firms and their financial statements. So what do we do? My choice is to get out of this game altogether, but 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 there's a lot of uncertainty out there, and no amount of commercial forecasting is going to change that”. Roubini is saying that GDP isn't ever for certain: It can be determined one year then the same year can be revised a whole percentage point later! It's hard to predict things like wars or terrorist attacks. In fact, GDP is very easy to “game” (Ritholtz, 2010). “[Y]ou simply under-report inflation, 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 make sure that it's not just one or two goods that grew in price for other reasons, there's a lot of subjectivity and uncertainty in making it.

GDP is also not as helpful 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. Now you have to decide whether you need the tree or the GDP” (Sharma, 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 guided by economic facts and by measures like the GDP: As we've seen already, the GDP's inadequacies can cause lawmakers concerned only with increasing the GDP to increase externalities such as injured workers, ecological damage and health costs 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 America's competitiveness” (Mitchell, 2005). Mitchell cites a Rahn curve, which says that there's a curve in tax revenue 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

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“GDP and the Business Cycle Economic Health Memo Term Paper”, n.d.)
Retrieved from https://studentshare.org/other/1405689-gdp-and-the-business-cycle-economic-health-memo
(GDP and the Business Cycle Economic Health Memo Term Paper)
https://studentshare.org/other/1405689-gdp-and-the-business-cycle-economic-health-memo.
“GDP and the Business Cycle Economic Health Memo Term Paper”, n.d. https://studentshare.org/other/1405689-gdp-and-the-business-cycle-economic-health-memo.
  • Cited: 0 times

CHECK THESE SAMPLES OF GDP and the Business Cycle Economic Health Memo

Domestic Transportation Infrastructure

However, in some countries the use of cycle is preferable as a means of transportation in urban areas (Krizek, 2003).... The paper will discuss what modes of transport are, which modes of transport are more commonly used in urban and especially metropolitan areas, why people do not use cycles or other clean fuel options to go to work anymore, and how can this trend be changed....
15 Pages (3750 words) Research Paper

Measuring Economic Health Memo

Measuring Economic Health (College/University) economic health memo The market value of entire goods and services produced in a country within a given period of time can be regarded as Gross Domestic Product (GDP).... Measuring Economic Health (College economic health memo The market value of entire goods and services produced in a country within a given period of time can be regarded as Gross Domestic Product (GDP).... , opine, the effective measurement of GDP is very helpful to assess the business cycle....
2 Pages (500 words) Essay

The Concept of a Fully Integrated Market

he next stage of economic integration is the customs union, where internal tariffs and quotas are accompanied by certain external trade restrictions, or where external tariffs and quotas are harmonized.... he economic union is the fourth level of integration, at which the member states harmonize their economic policies, mainly in the areas of economic and fiscal policy.... A series of central institutions aids in the coordination of particular areas of economic policy to the point that sovereign states relinquish control to the supranational body....
14 Pages (3500 words) Essay

Measuring Economic Health Memo

By getting a feeling for how the whole economy is doing, business managers can decide whether or Teacher 7 Re: gdp and the business cycle – Economic Health Memo gdp and the business cycle are closely tied together.... hellip; But both are used to predict the business cycle. ... But both are used to predict the business cycle.... Knowing how GDP is doing now helps to predict if were in a boom or a bust, which is important to the business cycle....
2 Pages (500 words) Research Paper

Economic Health Memo

The essay "economic health memo" is about the business cycle, predictive statistics and government policy are obviously all intertwined.... hellip; However, GDP's value as an economic indicator, and therefore a predictor of the business cycle, is coming under attack now.... 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 guided by economic facts and by measures like the GDP: As we've seen already, the GDP's inadequacies can cause lawmakers concerned only with increasing the GDP to increase externalities such as injured workers, ecological damage, and health costs as a byproduct, and not reap the consequences or even be aware of them....
4 Pages (1000 words) Term Paper

Financial Market of Xcolonia

The Lewis-Ranis Fei model suggests that the economic growth take place if agricultural laborers are transferred to the industrial area, where their productivity would increase (Williamson et al.... Inefficiency may consequently result to a reduction in the gdp.... Import- substituting industrialization is a policy that is mostly used by small and developing countries....
8 Pages (2000 words) Assignment

Business Environment

Among the other factors that may impact the way, the business runs its activities is the external environment.... It is known that customers are among those external elements that are able to influence the business the most and thus the company should know that good relationship with clients is based on finding ways to influence them to purchase one's products.... It is used to identify and analyze the key drivers in the business environment....
9 Pages (2250 words) Essay

The United States Economy Forecast

In addition, other professionals in the budget department use the predictions to plan an expenditure budget and provide recommendations for the next fiscal period (Forsythe & Boyd, memo 3).... hellip; In addition, the economic indicators provide a precise stand of what direction the economy has gone and where it is headed.... For nce, economic indicators illustrate when the economy falls like in a recession and when the economy grows like during economic development (Griffis, ch....
10 Pages (2500 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us