Question

Scenario: Your organization's CEO is concerned that members of the strategic planning committee are not familiar with current economic thought and principles. The CEO has assigned you the task of developing a report to introduce some of these thoughts and principles.

Develop a 1,050-word report to the members of the strategic planning committee explaining the following information:

How economists are both scientists and policymakers and what process society uses to allocate its scarce resources.

Using the circular flow model, explain the flow of money and goods in an economy.

How does the economy coordinate society's independent economic actors.

A country's gross domestic product (GDP) and how it is defined and calculated.

How the consumer price index (CPI) is constructed and why it is an imperfect measurement of the cost of living.

Format the assignment consistent with APA guidelines.

Answer 1

Ten Principles of Economics and the Data of Macroeconomics

Economics can be a tricky subject but so can be running a country. There are several factors and measurements that economists use to allocate scarce resources and resolve situations. Economists are not only the scientist but also policymakers who use theory methods in addressing issues. From circular flow, model to gross domestic product and consumer price index. A successful functionally country can be difficult to determine and function but economics work towards the best results.

Economics

The word economy comes from the Greek word for “one who manages a household.” (Gregory, 2015, Chapter 1) Bottom of FormHouseholds face many decisions in which members does tasks and what they get in return. Like households, society faces many decisions in the same principle. A society much decide what jobs will be done along with who is doing them. Resources have to be used and created, so society needs to allocate people to various jobs or tasks along with the output of goods and services.

Top of Form

Economists work with scientific methods for developing and testing of theories about how the world works. Economists are the scientist in the way they address their subjects. These economics devise theories, collect data and then analyze the data in an attempt to prove or disapprove theories. Economics are no just scientist they are also policymakers because of how they have to respond to economic disasters caused naturally or by wars. Economists have to pay close attention to natural experiments offered by history or wars. They do not have the luxury of testing their theories in a laboratory like the most scientist. Economist uses different assumptions when studying short run and long run effects of the change in the economy. Most economics use the circular flow diagram and or the production possibilities frontier model for testing theories and allocating their scarce resources for an efficiently flowing economy.

Circular-Flow Model

The circular flow diagram is a visual model of the economy that shows how dollars’ flow through markets among households and firms. (Gregory, 2015, Chapter 2) In economics, the circular flow model is a diagram that is used to represent the flow of goods and money transactions in an economy. There are two flows in the diagram the flow of physical things like goods or labor and the movement of money which is what pays for physical things. To break it down money comes from households goes though the market for goods and services to the firms. Then the goods and services come from firms through the market for goods and services to the households. Another flow of money is from the firms through the market for factors of production to the households. Them the factors of production comes from households through the market to the firms. The diagram introduces a clear view of how the economy works without a detailed description. The way of measuring all these flows of money is with the gross domestic product (GDP).

GDP & CPI

The gross domestic product (GDP) represents the total dollar value of all goods and services produced over a specific period. Measuring the gross domestic product is complicated to measure it can be estimated using one of the three methods: the total expenditure, at total income or using the production approach. The expenditure approach calculates the GDP by summing the four possible types of expenditures which are the final spending on goods and services. (GDP equally consumption plus investment plus government purchases plus the net exports). The income approach, however, is calculated by adding up total compensation to employees, gross profits for incorporated and non-incorporated firms, and the taxes less any subsidies. Now the income approach calculates the market value of goods and services produced. These are three ways to measure GDP growth which is what countries seek to increase. By increasing the GDP growth, there is normally an inflation of standard of living and population.

Now the consumer price index (CPI) on the other hand is the measure of the overall cost of goods and services bought by a typical consumer. The CPI is on more of a mathematical measurement standard where the percentage change in the consumer price index measures the inflation rate. The consumer price index is an imperfect measure of the cost of living for three main reasons. First, the measurement does not take the consumer's abilities toward goods that become cheaper over time. Second the measurement does not take into account the increase in purchasing power of the dollar caused new or better goods. Third is the unmeasured changes in the quality of goods and services. Both the GDP and the CPI measure the overall level of prices in the economy. Although they have some differences, the CPI includes goods and services produced rather than the goods and services consumed.

Conclusion

Money is a key element from buying goods to a functional country. Economists use the circular flow model to measure the flow of money to the products and services. Determining how the country functions and what the scarce resources are. Then they can use their theory methods to determine the best outcomes from GPD and GPI measurements.