Gross domestic product can be defined as the monetary value of all finished goods and services that are produced within a country within a specified time period. It is typically evaluated on a yearly basis and comprises all the consumption that has been recorded from the private sector and public sector, the value of investments, a total of imports and exports and government expenditures in a given region.
It is a monetary measure of the production of the economy that is valued using the prices from a specific selected base year. For example, each year, the economy’s production will be evaluated basing on the prices that existed in 1996 (Auerbach 36).
This helps in ensuring that the prices that are being used for evaluation are held constant, thus the only reason that would lead to an increase in the value of GDP would be a higher production cost from the nations businesses.
Business cycle on the other hand refers to the cyclical fluctuations in real domestic product (Lawrence & Koehnk 53). The business cycle plays is significant during the evaluation of Gross Domestic Product.
The economy’s health at the national, state and local level is usually reflected at the rate of in GDP which is commonly referred to as economic growth which grows over time and varies from time to time from strong growths to weak growths i.e. economic slowdown (Auerbach 68). The stability of fiscal policy depends on the number of government agencies, where by a large number of government agencies favors its stability.
Such agencies and bodies mostly deal with interest, tax rates and government spending with an objective of trying to control and regulate the economy. Regulation of the flow of money is one of the major roles of the Federal Congress reserve; regulation of cash flow plays an important role in minimizing inflation rates (World Bank 76).
The Federal Reserve Act has a provision for monetary policy with a specific interest of effectively promoting facilitating price stability (Lawrence & Koehnk 46). In order to achieve these goals, it is important for the economy to be financially stable first. The internal Revenue Service is tasked with the responsibility of taxing the citizens.
In scenarios whereby the policies are altered by the government agencies, the production rates can rise or depending on the nature and implementation of the policy. For instance, the current government is trying at all costs to convert to green energy and the probability for it providing and giving subsidies to business is high (Auerbach 57).
This will help business to employ more people. The effects of fiscal policy decisions on the employment and production economy are very many and affect the behavior of individual businesses and households. Let’s take a look at some of them (World Bank 22).
The impact that the increase in the basic rate of income tax or merely an increase in the rate of contribution towards national insurance is far fetching (Lawrence et al 45). Alternatively, the effect might encourage less work since the high tax imposed acts a distinctive to work (Lawrence & Koehnk 16).
Gross development product usually is the determining factor of a country’s economy. Therefore to have a steady GDP, the government has to ensure that appropriate policies are in place in order to boost the economy.
Auerbach, Alan.. Fiscal Policy: Lessons from economic research. Massachusetts: Massachusetts Institute of Technology. 1997. Print
Gitman, Lawrence and Michael Joennk. Personal Financial Planning. London: Cengage. 2007.Print.
Uphoff, Norman and Warren llchman. The Political economy of development: theoretical and empirical contributions. California: University of California Press. 1972. Print.
World Bank. World Development indicators 2003. Washington: World Bank Publications. 2003.Print.