Measuring Economic Health Paper - Essay Example

Thus, a measure of improvement in the environment as well as measures of economic health may be used jointly to measure or assess development. Some of the more important measures of economic health are the Gross Domestic Product (GDP) and the Gross National Product (GNP). The GDP refers to “the value of final goods and services produced” (Dornbusch et al., 2008, p. 36). The qualification “final” is used to avoid double counting because counting the tire, for example, may double count with the value of the car.

Dornbusch et al. (2008, p. 36) emphasized that that the GDP consist of the value of goods currently produced. Thus, for each year for example, the GDP refers to the goods and services produced during that period or year. GDP is measured annually. The GDP is a concept or measure similar to the GDP. However, while the GDP refers to the goods and services produced in a country that may include both the value of output from both citizen and alien producers, the GNP refers to the goods and services produced by citizens or nationals.

Thus, the GNP also covers the production of goods and services by nationals or citizens abroad. . For example, Real GDP or GNP in 2010 prices measures the GDP or GNP using year 2010 prices. For these, economist use a variable known as GDP or GNP deflators that convert all GDP and GNP of all years into the GDP or GNP values of year 2010. For each year, there can be specific GDP or GNP deflator that can convert the GDP or GNP into a particular year. Nominal GDP or GNP refers to GDP or GNP measures in a particular year using prices of that year.

Through the real GDP and GDP over several years, economists are able to assess whether a business cycle exist as well as determine the period which constitute a business cycle in which there is cycle of relative slump and recovery. One theory in economics holds that there is an equilibrium real business cycle (Dornbusch et al., 2008, p. 553). The theory asserts that “fluctuations in output and employment are the result of a variety of real shocks that hit the economy, with markets adjusting rapidly and remaining always in equilibrium” (Dornbusch et al., 2008, p. 553).

Dornbusch et al. (2008, p. 553) clarifies that the real business cycle theory is a result of a perspective known as the “rational expectations” approach in economics. The rational expectations approach in economics assumes that economic agents are rational and use all available information, including forecasts and past experience in anticipating the direction of the economy and in response to that direction, their behavior or action in that economy. Economics bodies in the government determine fiscal policy.

Usually, several bodies in government determine or are tapped to determine fiscal policy. In the United States, one such body is the Federal Reserve Board. The Chairman of the Federal Reserve Board, for instance, may be