Essay about GDP as from FMI

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This statistical summary shows that the US GDP responds to the four basic instruments of the domestic economic policy: the fiscal policy (FE), the foreign relations policy (ER), the income distribution policy (MW) and the monetary policy, both directly through the public debt (D) with negative sign and indirectly through the credit (DEBTS) with a positive sign. It was also found that, as theoretically expected, the exchange rate ER and the minimum wage MW are more effective in displacing the aggregate demand than shifting the aggregate supply for an increase in ER or MW leads to a greater GDP. Dollar devaluation and higher minimum wage cause GDP to grow. Collecting the coefficients for each explanatory variable it comes about the theoretical equilibrium equation for the US GDP, a hypothetical situation in which the GDP would be in a theoretical state of equilibrium:
GDPe = -473.109 + 2.39936*FE + 569.291*MW + 5.67532*ER – 0.242064*D + + 0.245723*DEBTS
The coefficient for the fiscal policy (≈2.4) in the GDPe equation is the Keynesian multiplier for this sample. It means that ceteris paribus MW, ER, D and DEBTS, a fiscal expenses expansion of US\$ 1 billion does not touch the aggregate supply curve and leads to an aggregate demand shift such that at the new theoretical equilibrium point the US GDP would initially be US\$ 2.4 billion larger. Vice versa, a reduction of 1 US\$ billion in the fiscal expenses would cause a GDP initial loss of US\$ 2.4 billion. Primary surpluses cause recession and unemployment. The coefficient of each explanatory variable depends not only upon its time performance vis-à-vis the time performance of the endogenous variable; it depends also on the time performance of all other explanatory variables thus making ...

... middle of paper ...

...ger a continuous process of a GDP sound expansion the interest rate should be reduced indefinitely even after crossing the zero line, but then it would no longer be a monetary policy but a fiscal policy.

Works Cited

BAIMAN, Ron and Mel Rothenberg (2007). Rentier-Based Finance-Led Macroeconomies: Keynesian or Classical in the Short-run, but Unsustainably Debt Dependent and Minskyan in the Long-run. Chicago Political Economy Group Working Paper 2007-1. http://www.cpegonline.org/workingpapers/CPEGWP2007-1.pdf.
BALKE, Nathan S. and Kenneth M. Emery (1994). Understanding the Price Puzzle. Economic Review of The Federal Reserve Bank of Dallas, Fourth Quarter. http://www.dallasfed.org/assets/documents/research/er/1994/er9404b.pdf.
COURNOT, Antoine August (1838). Recherche sur les Principes Mathématiques de la Théorie des Richesses”. Paris: Marcel Rivière, 1938 edition.

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