Quiz 15: Government Macroeconomic Policy

Business

Gross Domestic Product (GDP) is defined as the value of all final goods and services produced in the economy during a given period of time, usually one year. The GDP includes all goods and services that are purchased as the final product, it is measured in value terms, and GDP includes all goods and services produced within a given year and GDP only take into account all domestically produced goods and services. The homemaking services often go unnoticed because it has no values attached to it. If someone babysits her own child and paints the fence in his backyard; he/she saves the money of the babysitter and painter that would have entered into GDP if the services would have been paid. Therefore, the GDP would have been higher than the current GDP. As almost every U.S. citizen does something or other of the homemaking activity every day, a larger portion of the GDP is going unnoticed. Hence, the government should attach a value to these services and count these values in the GDP statistics.

Gross Domestic Product (GDP) is defined as the value of all final goods and services produced in the economy during a given period of time, usually one year. The GDP includes all goods and services that are purchased as the final product, it is measured in value terms, and GDP includes all goods and services produced within a given year and GDP only take into account all domestically produced goods and services. The GDP is used as an indicator of economic activity, as well as a measure of standard of living. If the GDP grows overtime, it is assumed that standard of living is increasing. This assumption has some flaws, as non-marketed activities, the underground economy and the distribution and composition of national output make GDP an imperfect measure of economic activity. The homemaking services which are considered as a non-marketed service, often go unnoticed because it has no values attached to it. If someone babysits her own child and paints the fence in his backyard; he/she saves the money of the babysitter and painter that would have entered into GDP if the services would have been paid. Therefore, the GDP would have been higher than the current GDP. As almost every U.S. citizen does something or other of the homemaking activity every day, a larger portion of the GDP is going unnoticed. Thus, the exclusion of non-marketed services distorts the comparison between the GDPs of two years or countries. The underground economy involves activity that is never reported to the government, either because the activity is illegal or the participants want to evade taxes. For both the reason the value of GDP understates the economic activity. On the other hand, the composition and distribution of real GDP plays an important role in determining the standard of living. The country with more expenditure on warfare is certainly experience lower standard of living than a country with more health and education and other goods and services expenditure. Again, a country where a small group of people enjoys the fruit of higher GDP has overall lower standard of living. For the reasons stated above the higher GDP is not synonymous with higher standard of living. Hence, GDP is not an accurate measure of standard of living.

Gross Domestic Product (GDP) is defined as the value of all final goods and services produced in the economy during a given period of time, usually one year. The GDP includes all goods and services that are purchased as the final product, it is measured in value terms, and GDP includes all goods and services produced within a given year and GDP only take into account all domestically produced goods and services. There is a tradeoff between unemployment and inflation. Higher government spending means high GDP and lower unemployment at the cost of high inflation. The lower GDP means lower inflation at the cost of high unemployment. a. War : The effects of war in GDP are twofold. War in the country means more government spending on warfront. This means high level of GDP and high employment. This also means higher inflation. However, the war in other major trading partner lowers export and imports which may lower the level of GDP. b. Elimination of environment regulation : The environment deregulation provides the incentive for the business to expand and the aggregate supply and GDP of the economy increases. Expanding business also implies the higher employment and higher inflation. c. Cut in the welfare benefit : It is argued that the cut in welfare benefits decreases the spending of the government, thus will lower the GDP and employment. The promoters of this policy argue that the policy increases the incentive to effective job search and thus increases employment and GDP.