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Macroeconomics

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Macroeconomics

Introduction

This paper intends to discuss the most important aspects of gross domestic product. Economy is the backbone of every country and taxation relates to managing this backbone. Whenever there is a change in tax structure or tax policies, an economy is affected either in a favorable manner or vice versa. The most crucial tasks of government include taxation but despite its importance, it has never been popular with the public. Governments usually handle their tax policies as per their requirements because this serves as a basic tool for managing an economy. Increased tax rates are usually linked to control the inflationary patterns whereas reduced tax rates often seen as a useful measure to stimulate economic growth. The purpose of this paper is to make the reader aware about various aspects related to the important economic concept of gross domestic product.

Discussion

If GDP does not include the value of used goods that are resold, why would including such transactions make GDP a less informative measure of economic well-being?

The GDP measures the performance of an economy - but the measure has loopholes. The GDP measures the production of traded goods and services in markets. Where there are no markets, GDP has a problem. A second disadvantage is that when there are no direct competitive prices - for example in healthcare or government-related services, it is difficult to determine the value of GDP. GDP does not tell us how sustainable is the growth of the number of non-renewable resources are used for how much pollution it causes. But that is definitely a drawback. The first and best solution for the economists argue in the case is that you internalize the external costs (Lochner, Pp. 1-32).

Why do economists use real GDP rather than nominal GDP to gauge economic well-being?

GNP assesses the total value of the goods and services produced by a given national group of people in a given year. Because statistically total output must equal total income and expenditures, it is also a measure of those two other dimensions of the economy. In typically macroeconomic accounting, GDP is the sum of consumption, gross investment (not counting depreciation), government spending, and net exports. This measure is also equal to total employee income (wages and salaries) and profits (returns to businesses); thus, GDP is sometimes called gross domestic income. GDP may also be regarded as the sum of all profits added at different stages in production from raw material to final good (Mankiw, Pp. 500-550).

"Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent." (Christina Romer, Obama Economic Advisor)

The GDP is comprised of the Consumption, Gross Investment, Government Spending and the Net Exports (which is derived from total exports minus total imports). Mathematically, it can be showed as below;

GDP = C + I + G + (X - M)

Describe the three problems that make the consumer price index an imperfect measure of the cost of living.

The change in the ...