Economic Health Memo Term Paper Example | Topics and Well Written Essays - 250 words

Economic Health Memo - Term Paper Example In fact, GDP is very easy to â€Å"game† (Ritholtz, 2010). â€Å"[Y]ou simply under-report inflation, and GDP appears to be better than it is†. Since inflation depends on counting the value of a good last year and doing so across many goods to make sure that it's not just one or two goods that grew in price for other reasons, there's a lot of subjectivity and uncertainty in making it. GDP is also not as helpful as it could be because it positively counts negative externalities (Ritholtz, 2010). That means that pollution, which is a bad thing, is counted as a good thing because it makes people spend money to go to the doctor or buy new houses to move. â€Å"If you buy a car, the GDP goes up. If you cut a tree, the GDP goes up. But if you preserve the tree, the GDP does not grow. Now you have to decide whether you need the tree or the GDP† (Sharma, 2010). Thus, it is hard to use the GDP to predict the business cycle, and economists are looking for a better indicato r of economic health. Fiscal policies are guided by economic facts and by measures like the GDP: As we've seen already, the GDP's inadequacies can cause lawmakers concerned only with increasing the GDP to increase externalities such as injured workers, ecological damage, and health costs as a byproduct, and not reap the consequences or even be aware of them. But what about fiscal policy and unemployment? The jury is out as to whether reducing or increasing taxes, reducing or increasing spending, etc. is better for production and employment.