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By - Ramona Reed

Parameters of Analyzing the Status of an Economy

There is no single day that will pass without you seeing economic news on social media, television, or newspapers. Every so often, we are told that the economy is stagnating, and there is high unemployment. However, any government needs to set a clear agenda and economic objective which is understandable to the citizens as well as other interested partners. As such any deviation from the short-term objectives such as stabilization of the economy or long-term goals such as growth should be noted through the economic performance indicators. The indicators will form a foundation of whether the policy makers need to intervene when the economy is performing poorly or not.

The aim of any economy is to provide the people with income to invest, buy cars, take holidays and live a better life. The income that people make will be saved to banks or used as investment. As such, one way to measure the performance of the economy is through the Gross Domestic product that measures the level of output. It should be noted that GDP involves the goods and products that are produced domestically.

Another way to measure the success of an economy is the through business cycles that a country is experiencing. The recession and booms that the nation is experiencing will tell whether it is in a state of stability or whether there is a need for intervention. During the time of prosperity, the economy grows and the rate of unemployment reduces.

However, during contractionary, there will be runaway inflation and high unemployment rate in the country. When a recession persists and the employment does not increase, an economy may fall into what is referred to as a depression. For such reasons, every government needs to have experts in matters of economy who monitor its behavior. Failure to note and alert the policy makers when there is a need for a change may result into collapse of an economy a situation that occurred in the United States in 1930s.

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