Analayze Excel Spreadsheet on Italian Goverment Term Paper

Analayze Excel Spreadsheet on Italian Goverment - Term Paper Example Increased production of goods and services in an economy does benefit the standards of living and wellbeing of the citizens in some ways but not always. This is because GDP does not give a clear answer of essential questions such as whether the people are consumption much on the wrong things, or whether people have better quality consumption or whether the savings are too little (Miles and Andrew,56). Additionally, the GDP does not measure elements of wellbeing that are not related to government consumption and financial income: longevity, leisure time, social equality, capabilities, quality of education and many others. This paper tries to analyze the correlation relationship that exists between GDP and government consumption, and between GDP and government bond yield. The GDP and government consumption relationship appears to be in the sense that even though Gross Domestic Product is calculated using numerous measures, government consumption on its part is the single most vital com ponent. In most countries the government consumption exceeds 50% of the GDP while in some this could go beyond 70%. In Italy for instance, government consumption is considered to be the main statistic on which it relies while calculating the GDP. Several studies reveal that the most important relationship between GDP and government consumption is that an increase in the level of consumption results to an increase in the level of the GDP (Miles and Scott, 13). Government consumption is a broad Macroeconomic element hence it is necessary to divide into several components in order to get the real picture of its correlation relationship with the GDP. The consumption of durable goods refers to nonperishable goods and goods that last for a period of more than three years, while on the other hand nondurable goods are the goods consumed for perishable goods or other goods that generally last for less than one year. A country’s treasure is the most impacted area within the economy whe n taking about the bond market (Schaefer, 65). Most economists argue that the most appropriate way in trying to understand the relationship between the bonds and the economy is to think about interest rates as being the cost of money (Taylor, 21). A stronger economy is characterized by high demand of money because greater activity means that there is more of need for cash that can help in financing projects. Theoretically, stronger economic growth makes inflation likely. The Italy Federal reserve is more likely to fight inflation through boosting the interest rates (Miles and Andrew, 77). A projected increase in the interest rates could mean long-term rates could be expected to follow and the vice versa (Schaefer, 112). While all section within the bond market takes their cue for treasure in an ultimate way, government bonds are seen as being the safest investment globally. The long term relationship between bond yields and macroeconomic fundamentals can break down in the short run, particularly during financial stress periods. For instance, after the 2007-08 global crises and despite the pilling up of general government debt in the USA, the United States bonds yields have been trending downwards (Schaefer, 90). On the other hand, borrowing costs in some European countries such as Spain, despite a relatively lower initial level of general debt, have continuously exceeded those of more highly indebted nations such as the UK