Macroeconomics There Are Three Main Essay

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" Some types of government expenditures, for example, stretch the definition of economic activity. We know that an order for new office chairs at city hall is economic activity, but what about transfers to government agencies to run prisons? Or loans made by government to bail out banks or automakers. Those were expenditures. Something like the AIG bailout was an investment. But even investments are not necessary part of the GDP. Commissions paid on investments are, but are the investments themselves? Sorting out what is and what is not included in the GDP is another challenge for calculating national income.

Also, EconPort (2006) note that welfare is not measured. Again, this is a disbursement that is not taken into consideration in the accounting, until it is spent at a later point in time. It is worth noting that this particular disbursement is a transfer of wealth not unlike spending, and is money that is funneled into the economy by government.

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A last point is that national income accounting does not factor whether an expenditure is actually beneficial for the country. It is illusory in that all figures are positive. Yet spending money rebuilding after Katrina or the Japanese tsunami is not spending towards economic progress; it is merely recovering what was lost. Thus, national income accounting takes some spending into account that it should not, if it is to be considered a measure of economic progress.

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