Competitive Analysis and Business Cycles

Intermediate and Final Goods

Intermediate good refers to the good that is used as input in the production of other goods. This implies that these goods serve as raw materials and are utilized in the achievement of the desired product. Wheat is a significant example of an intermediate good that is utilized in the production of flour. Arnold (2010) agrees that final goods refer to those goods that are ready for consumption among consumers. This means that final goods are available in the market and consumers have access to them hence satisfying their needs. Motorcars are examples of finished goods as ultimate consumers have the capacity to derive satisfaction from them.

Intermediate goods are not included in the GDP calculations since they do not account for the final consumption, while final goods are included because they account for the final consumption and satisfaction of individuals.

Taylor (2006) asserts that real GDP is not an adequate measure of well being of a nation because it takes into consideration only monetary transactions and ignores those services provided for free, such as the roles played by a housewife. This deficiency in accounting makes it inadequate in the measurement of the nation’s well-being. Additionally, GDP violates effective accounting of assets as it takes into treats the depletion of these assets as current income. This makes it an inadequate measure for determination of the nation’s well-being. Again, real GDP does not take into consideration such events as leisure among individuals.

GDP is a vital statistic because it indicates the economic growth of a country by showing the utilization of different resources.

Federal Government Expenditures

The Federal Government incurs recurrent and capital expenditures. Recurrent expenditure refers to the expenditures incurred by the government on such matters as wages and salaries, and purchases of goods and services. These expenses are recurrent and the government has to incur them after a periodic time interval. Capital expenditures refer to the expenditure incurred by the government on long-term projects and acquisition of fixed assets. It is vital to note that capital expenditures are long-term and aim the development projects such as construction of roads and schools within a particular area.

Rittenberg & Tregarthen (2009) affirm that discretionary spending is a type of spending that the federal government accesses through an appropriations bill. It is significant to note that discretionary spending is optional as part of the fiscal policy. This type of spending is always set up by decision of the Congress. An effective example of discretionary spending is spending on the activities of the FBI in the United States of America. On the other hand, transfer payments refer to the payments made by the government to individuals and different organizations without anticipation of getting services or products in return. Examples of transfer payments include payments made to support the disadvantaged in a society, and those offered to charity.

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Transfer payments have increased significantly in the recent years because of increased level of charity activities and sponsorships to different individuals by the government. This is done as the government is aimed at improving the living standards among individuals and ensuring that there is the improvement of living standards. The continued commitment of the government to supporting the education and living standards of the physically challenged individuals in the country has also led to the increase in the level of transfer payments in the recent years.


A recession refers to the overall decline in economic activities within a country. A recession implies that the economy is growing at the slowest rate as a result of reduced investments and economic stability within a country. During a recession, there could be the increased loss of employment among individuals because of the closure of some companies. There would also be instances of general rise in prices of different commodities and services because of recession.

The United States is currently experiencing recession. This is reflected in the decline in the effective level of GDP growth rate in the United States. The decline in the level of GDP implies that the level of economic activities all over the country have declined hence leading to the recession. This is also drawn from the fact the increase in the level of GDP helps in determination of economic growth within the country. This is different with the US where the GDP has declined hence indicating that the country is in a recession.

The Natural Rate of Unemployment

The natural rate of unemployment refers to that lowest rate of unemployment that the economy can sustain in the long run. According to the Keynesian approach, a government would only be able to lower the level of unemployment by accepting a higher level of inflation as it comes into the economy. McAfee & Lewis confirm that the natural rate of unemployment includes both frictional and structural unemployment.

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One of the significant factors determining the level of frictional unemployment is flexibility of the labor market. This one happens due to the influence of trade unions, which could restrict supply of the labor to certain markets.

Hysteresis is another factor leading to the change in the natural rate of unemployment. This emanates from increased recession hence leading to the decline of labor within the market. This leads to the change in the natural rate of unemployment in the market.

Last, the availability of job information leads to the change of the natural rate of unemployment. In cases where individuals are in possession of adequate information relating to job opportunities, the level of unemployment would decline. On the other hand, limited information would increase unemployment within the market. 

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