QUESTION 1 : Fiscal policy is the governments tax and spend policy. It is called

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QUESTION 1 : Fiscal policy is the governments tax and spend policy. It is called discretionary fiscal policy because it is at the discretion of Congress. All money bills originate in the House of Representatives. The basis of fiscal policy is the GDP (Gross Domestic Product) model which is also known as the aggregate expenditures model----GDP=C+Ig+Xn+G. This is supposed to measure the dollar amount of all goods and services produced in this country in one year. The C is consumer spending---that's you and me spending (71% of GDP). The Ig is gross private investment (14%) known better as simply gross investment. This is business investment. Together, C and Ig make up approximately 84% of GDP. This is why all Keynesian economic policies are based upon increasing demand for products and services (demand analysis). The GDP is dependent on consumer and business spending. So if you want the economy to boom, when you leave class take all the money you have on your person and spend it. Then use your debit card and wipe out your bank account and spend that money as well. Follow this by maxing out your credit cards and the economy will boom! Of course you will be destitute but you will have done your "fair" share to help others. That should give you a great feel-good attitude. Did I mention that this is the equation the government uses to control the economy. You didn't know the economy was regulated by a mathematical equation? Should the economy be run by a mathematical equation? To calculate the GDP the government counts only final goods. There are intermediate goods, also called work-in-progress. Finished goods are those that have been fully assembled or completed, and have had their final inspection. They are ready for release. Intermediate goods are the components that are used to produce the finished goods. Work-in-progress are goods that are in various stages of production but have yet to be finished or have not received a final inspection. WIP can be finished goods that have not yet had their final inspection. The problem with Keynesians is that they do not realize that it is supply, not demand, that drives an economy. Demand side economics is a construct of Lord Keynes. The father of supply-side economics is Jean Babtiste Say. Say's Law states that supply creates its own demand. This simply means that if you provide a product that people want, and provide it at a place people are willing to go, and at a price people are willing to pay, you will never have general unemployment. Another way to look at this is that I work at Valencia not to be able to purchase an education but rather to earn the money necessary to buy those things I desire. People, generally, do not work for a firm so they can purchase the items made by that firm. Can you imagine the wages Ferrari would have to pay if their workers toiled so they might purchase the product they were producing? They work at a job so they can earn the money to do those things you want to do. My father said it is a lucky man who can work at a job he loves. I am doubly blessed. I love my work and the College is paying me to do it. My old father told me that if a person has a family to provide for and bills to pay, they should take any job they can get. Then they can start looking for something better. He said all work is honorable work if one does it to the best of their ability. The problem, as I see it, is everyone wants to start at the top. Do you believe the GDP is a good measure of national output or wealth? Why or why not? Should government spending be included in the GDP model? There are 4 embedded questions.

QUESTION 2 : Unemployment is not necessarily an accurate figure. Why isn't it? The labor participation rate---the number of people actually working as a percentage of those who are employable is at a very low level. It is however improving. If we calculated unemployment as we once did in 1974 the rate would be about 9 percent. Even then the figure is suspect if for no other reason than the way full time employment is defined. Not that many years ago full time employment was defined as working at least 35 hours a week. Now it's 28 hours. It's even worse though. Some jobs are scheduled for 25 hours to prevent the employee from going over 28 hours. If you are working 25 hours or more a week, and looking for full time employment, you are fully employed. Then there is the military who are now, for the first time, counted as being in the work force and fully employed. I guess you could call breaking things and killing people employment. It's nice to know that when I was in the military, serving as a tactical trained killer, I was fully employed. Most people, myself included, feel that military service is a privilege . The main problem with the unemployment figures is that they are at best an educated guess and at worst simply a fantasy. They call 60,000 randomly selected households every week and ask; Are you employed? Were you employed last week? Are you looking for a job (if you are not employed)?. Then, after releasing these figures, they wait for the payroll figures, which are usually higher and take several more weeks to compile. The original figures are adjusted and released, quietly if unemployment goes up and with great fan fare if they go down. Be very suspicious of government figures which include a decimal point. I don't know what to say about those with several decimal places except to say I have read more credible fairy tales. It's not that your government lies to you. It's just that they don't tell you the full story, just like the press. They relate all the news that fits their agenda. It's called lying by omission. This is not new, this creative bookkeeping has been going on since Franklin Roosevelt. Government is like fire, a dangerous servant and a fearful master. George Washington. I foresee the day when the interests of the political parties will become more important than those of the country. Thomas Jefferson This country is the first, and last, great attempt to see if man is capable of governing himself. Thomas Jefferson Should our fiscal policies be based on the employment figures alone, especially those released by the Bureau of Labor Statistics? There is 1 embedded question.

Explanation / Answer

Answer 1:

GDP is one of the most important important economic statistics. It reflects the value of all the final goods and services produced in the nation. It is used immensely in policy discussions and debates. However, it is not fully reflect the health of a nation because of the following factors-

1. It only includes output of the legal market. The items that are not included in the market transactions are not included in GDP.

2. The quality of people's life cannot be measured using GDP.

3. GDP does not consider quality of environment while measuring the output of goods and services produced.

4.GDP does not take into consideration leisure time of people.

Thus, it is not a true measure of economic activity.

Government spending should be included in the GDP model as aggregate demand of the economy consists of consumption, Investment, government expenditure and net exports of the economy.

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