Question

Discuss the concept of GDP (gross domestic product). Explain the difference between fiscal and monetary policy. Discuss the concept of the unemployment rate measurement. Discuss the concepts of inflation and deflation.  Explain other key terms: supply; demand; equilibrium price; monopoly; recession; depression.

Answer 1

GDP(gross domestic product): This is a Macroeconomic measure that gives the estimated value of all the goods and services rendered within a given economy or Country over a given period of time. It is usually used to show how productive an economy or a country is, it is usually presented in Percentage.

DIFFERENCE BETWEEN FISCAL POLICY AND MONETARY POLICY

Fiscal policies is an action by Government,where the Government regulates the economy by increasing or reducing expenditure or by increasing or reducing taxes or remain neutral.

Monetary policy is governed by the central bank,it does not involve the direct action of Government but involves the financial regulatory body taking the needed steps to either increase or decrease the money in circulation such as increase or decrease in interest rates,cash reserve ratio etc.

Explanation:

GDP(gross domestic product): This is a Macroeconomic measure that gives the estimated value of all the goods and services rendered within a given economy or Country over a given period of time. It is usually used to show how productive an economy or a country is, it is usually presented in Percentage.

Fiscal policy: This is a term used to describe the process through which Governments manage and control inflation and deflation or the economy at large by either increasing expenditure,reducing expenditures,imposing taxes,reducing taxes etc.

Fiscal policy can be categorised into three

(1) Neutral fiscal policy: In this case the Government does not act to influence the economy, it allows the economy to adjust itself.

(2) Expansionary fiscal policy: This is the policy where the Government acts in order to expand the reach of the economy by increasing the flow of money within the economy either through tax reduction or increased expenditures etc.

(3) Contractionary fiscal policy: This is the fiscal polity where the Government works to reduce the flow of funds within the economy through reduced expenditures or through increases in taxes and levies.

Monetary policy: This is a policy governed by the financial regulatory body of a country such as the central bank,it either acts to increase the money in circulation by printing more money or reducing interest rates or decrease the amount of money in circulation by increasing interest rates or increasing bank Reserve ratio etc

DIFFERENCE

Fiscal policies is an action by Government,where the Government regulates the economy by increasing or reducing expenditure or by increasing or reducing taxes or remain neutral.

Monetary policy is governed by the central bank,it does not involve the direct action of Government but involves the financial regulatory body taking the needed steps to either increase or decrease the money in circulation such as increase or decrease in interest rates,cash reserve ratio etc.

Unemployment rate: This is a term used to describe the total number of capable persons who are willing and have the competence to work but are unable to get the needed job.

Unemployment rate measurement: This is calculated as follows

(The number of unemployed÷total population of capable and willing persons)*100.

It is usually represented in Percentage. Higher Unemployment rates show a poor Economic Performance and measurement.

Inflation: This is a term used to describe the general rise in the price of goods and services rendered within an economy,it is usually measured in Percentage. It is caused by the following high income of workers,higher volume of money in circulation,low rate of supply of goods to the market etc

Deflation: This is a term used to describe the general drop or reduction in the price of goods and services rendered within an economy,it is usually measured in Percentage. It is caused by the following low income of workers,low volume of money in circulation,high rate of supply to the market etc

Demand: This is a term used in Economics to mean the desire or need for a given product or service at a given market price in a given period of time.

Supply: This is an economic term used to describe the amount of a particular product or service which a manufacturer is willing to give at a given price in a given time.

Equilibrium price: This is the price of a goods or service where both the demand for the goods or service equals to the supply of that goods or service

Recession: This is a term used to describe the situation where the overall GDP or Productivity of an economy is Negative for two or more quarters it is measured in Percentage.

Depression also known as Economic depression is a severe and long term downturn in economic activities in a given country,it usually lasts longer and more severe than recession.

Monopoly: This is a term used in Economics to describe a market where only one seller is selling a specific and unique product,in this case there is no Competition.