TO: The University of Phoenix, Economics Department
FROM: Lynn Messenger
SUBJECT: The Measure of Economic Health
To fully understand the concept of Gross Domestic Policy one must first become familiar with the term Gross Domestic Product or GDP. GDP is described as the market value of all final goods and services produced within a country in a given period of time. GDP is considered to be valued at current market prices, excludes intermediate goods and services, and includes all economic activity. The production of goods and services in an economy is like the flow of water through a pipe (Mankiw, 2007). When speaking in terms of economics it is important to not confuse Gross Domestic Product (GDP) with Gross National Product (GNP). GDP is output produced within a country whereas GNP is output produced by citizens of a country regardless of where they are located. GDP is typically measured in annual lengths of time and is calculated mostly by reports submitted by firms along with their taxes to the government. GDP is the result of the overall supply and demand of goods and services within the economy. When prices of goods and services fluctuate in the economy the aggregate demand curve will shift either inward or outward. This occurrence can be indicative of economic depression, recession, or a robust economy.
The role of Government Bodies is to monitor and assist with the economy should a crisis develop. The central banking of system of the United States is maintained by the Federal Reserve, also known as the FED. The FED was enacted in 1913 due to crises with the banking system and events such as the Great Depression. The FED can help to stimulate the economy by pumping additional money into the economy. This can be done in a few different ways. For example, the Federal Reserve can lower the reserve requirement, offer discount rates, and even buy government securities. This tool is…