Macroeconomics and Government Policy Part of the Economics For
Dummies Cheat Sheet (UK Edition) Economists use gross domestic
product (GDP) to keep track of how an economy is doing. GDP
measures the value of all final goods and services produced in
an economy in a given period of time, usually a quarter or a
year. A recession occurs when GDP is decreasing. An expansion
occurs when GDP is increasing. The unemployment rate measures
what fraction of the labour force cannot find jobs. The
unemployment rate rises during recessions and falls during
expansions. Anti-recessionary economic policies come in two
flavours: Monetary policy uses an increase in the money supply
to lower interest rates. Lower interest rates make loans for
cars, homes, and investment goods cheaper, which means
consumption spending by households and investment spending by
businesses increase. Fiscal policy refers to using either an
increase in government purchases of goods and services or a
decrease in taxes to stimulate the economy. The gover