ECO/212 Principles of Economics
September 9, 2010
Economics activity is measured by real Gross Domestic Product (GDP). Real Gross Domestic Product is the output of goods and services by labor and property within the United States (Bureau of Economic Analysis, 2010). Real GDP on average grows about 3.5% each year and has an impact on the business cycle. The fiscal policy has a tremendous effect on individuals and businesses. The tax and interest rate plays a major role on the success or failure of the economy.
The business cycle is measured by changes in real gross domestic product, and therefore, the focus is on changes in output and not input. Changes the government impose on purchases and taxes is aggregate demand can alter the level of real GDP. When government purchases decrease raises taxes, aggregate demand becomes slow and the rate of inflation decreases. Real GDP rises and fall over time, this cycle is known as the business cycle.
Changes in federal taxes and purchases made by the government to achieve macroeconomic policy objectives are called fiscal policy (Hubbard and O’Brien, 2010). The several government bodies that determine national fiscal policy is as follows: * Office of the President of the United States – makes decision on changes to the fiscal policy * Department of Treasury – manages and constructs the fiscal policy * Office of Management and Budget – develops and analyzes the fiscal policy * Government Accountability Office – audits the fiscal policy Each member of government plays a critical role in determining the patter and level of economic activity.
Congress and the presidents have used fiscal policy to fight recession. If a new fiscal policy takes longer than expected to be approved, this could cause harm. The Federal Open Market Committee can change the monetary policy at any of the eight meetings held each year, but...