organization’s CEO is focused on the concern of the fact that members of the
strategic planning committee are not accustomed with current economic thoughts
and principles. With this in mind, the introduction of the principles and
thoughts are a necessity in order for the strategic planning committee to
familiarize themselves with it. It seems that economists are both scientists
and policymakers because they believe in the principles of society used to
allocate scare resources, how the economy coordinates society’s independent
economy, product GDP and how it is defined and calculated and how the consumer
price index, CPI, is constructed any it is an imperfect measurement of the cost
economists have similar traits with scientists. This is due to the fact that
they must be able to hypothesis and develop models that can be tested by using
variable data. These models and the tests that need to be done in order to get
results can give predictions. At times the data can vary with incorrect or
inaccurate results, just like any test results. With the data collected,
economists are able to review and determine the objective analysis. This is used to determine what has been happening
in the economy and used as the future statements about the economy.
People use the
tradeoffs among alternatives, the foregone opportunities as well as their
rationale and incentives they face to allocate the scarce resources depending
with the abilities, desires and efforts of the members. The circular flow model
describes how resources, goods, money and services flow through an economy. Within
the process of flow through the economy, this shows that the income and
spending has connections between different parts of the economy.
Based on the
model, there seems to be two important players, which are the Goods & Services
Markets and Factor Market. The Factor Markets are the companies that produce
the goods and services in the economy, while the Goods & Services are
allocated to the to the major consumers. The major exchanges represented as flows of
money, goods and services are between these two economic firms. Economists use
this circular flow model to highlight the connection between households,
producers (known as businesses) and the government.
Macroeconomics (Mankiw, 2015, pg. 196-197, the way
the economy coordinates society’s independent economic actors is by using a
method called, “Gross Domestic Product”. Gross Domestic Product or GDP, “is the
market value of all final goods and services produced within a country in a
given period of time” (Mankiw, 2015, pg. 199). Its job is to determine how well
an economy is doing by looking at the total income that everyone in the economy
is making (Mankiw, 2015, pg. 196).
do this, GDP measures the total income for everyone in the economy and the
total expenditure of the economy’s output of goods and services. It can range
from food, land, cars and clothing. What the GDP does not measure is anything
illegal such as illegal drugs. It also excludes any homemade products that
never made it to the market. An example that was given in the chapter was
vegetables. For instance, if you purchased vegetables at a grocery store it is
part of GDP but if you grew them in your own garden it is not. This means that
the value is left out of the market (Mankiw, 205, pg 198).
Another example would be
goods and services being purchased in other countries which is also not part of
Economists study the various components of the various
types of spending of GDP. GDP is made up of consumption (C), investment (I),
government purchases (G) and net exports (NX). Consumption is spending by
household goods and services with exception of purchases of new housing.
Investment is the purchase goods that will be used in the future to produce
more goods and services. Government purchases is spending on goods and services
by local, state and federal governments. Net exports are spending on
domestically produced goods by foreign exports.
GDP, which stands for gross domestic product, is often
referenced and cited in a variety of reports, banks and throughout all
businesses. It is commonly used as a basis for the condition of health of
national as well as global economies. It
is a measure of the income and expenditures of an economy.
When the GDP Is growing, workers and business are doing
well. GDP is calculated for a specific period of time, usually during a year or
quarters. Within an economy, GDP Is the monetary value of all final goods and
services produced. The market values of a variety of goods and services must be
calculated to determine the GDP.
A consumer price index (CPI) measures changes in the price
level of a market basket of consumer goods and services purchased by the
average typical consumer. This is a more direct measurement of per capita GDP
of standard of living in a country. Its
basis on the overall cost of the fixed basket of goods and services purchased. By
including a broad range of thousands of goods and services with the fixed
basket, the CPI can obtain a more accurate estimate of the cost of living.
Consumer price index is fixed and when the market
changes like introduction of new goods, CPI does not account for that. Even in
change in quality of things because nothing stays the same. However, consumer
price index does not reflect change in quality. Also the CPI is a statistical
estimate constructed using the prices of a sample of representative items whose
prices are collected periodically.