Consumer spending is one of the most watched economic figures. Consumer spending is important because it is the driving force behind economic growth. Economic growth is measured primarily through gross domestic product (GDP) (Ronnasi) while consumer spending makes up seventy percent of the United States’ GDP (Hale). Consumer spending comes almost exclusively from the household sector of the economy. A cut back in consumer spending can be detrimental to an economy. It has effects on all of the other sectors of the economy. The amount of taxes collected by the government decreases because of the lack of economic activity. Suppliers will cut back on production because there are less people buying products. There will also be a slowdown in banking, …show more content…
The list includes interest rates, consumer confidence, availability of loans, tax rates, and the housing market (Pettinger). The interest rates on loans affects how much cash people have in their pockets. The lower the interest rates, the less people have to pay back to the banks, which means that they have more money to spend at the store. Consumer confidence is a big deal when looking at consumer spending. The more confident the consumers in the economy are, the more they will spend. Since the year of 2015, consumer confidence has been at a fairly normal value in the upper eighties and nineties (“United States Consumer Spending”). Another factor that raises consumer spending is the availability of loans. Loans allow people to spend now and pay later, which makes consumer spending increase. Low tax rates will cause the consumer spending to go up because the consumer will have more money to use. The final factor that affects consumer spending is the housing market. A house is a type of physical asset, so when house prices rise the wealth of the owner increases (Pettinger). When this happens across the entire housing market, consumer spending
Throughout Eveline Adomait and Richard Maranta’s Dinner Party Economics there is continuous discussion surrounding the problems that economies face around the world and the various methods that can be used to alter the state of the current economic conditions. Changes in consumer spending patterns can become a problem for the economy as a whole, potentially resulting in over-inflation or recession. Implementing discretionary policies such as monetary policy through changing interest rates, and fiscal policy through taxation and government spending, makes it possible to fix these economic problems.
Housing is the most instable component. It gave a new perspective for research that economists did not have. In the Great Recession the housing decreased more than anything. From 1997 to 2005 a momentum (the rate of acceleration of a security's price or volume, Investopedia) was driven. In 1997 no more capital gains taxes on houses up to half million dollars. The Bubble started in 1991.
Economist Nakajima Makoto says that "younger households, lower-income households in each age group, and extremely wealthy households" suffered from "a larger loss than average" in income. This is because the value of housing and stocks declined sharply during the Great Recession. Younger households tend to have a greater proportion of their wealth in housing, while wealthy households tend to invest more heavily in stocks (Makoto 2013). The decrease in consumer demand led to decreased investment in businesses because the businesses were suffering from a lack of demand from consumers, leading to lower stock
Through out the world, thousand of starving people look wherever they can for scraps of food or spare change. On the other hand, millionaires and billionaires can buy a private jet to fly anywhere on a whim while eating the finest of foods. In the middle, ordinary people work regular twelve-hour days in order to pay the bills and put food on the table. Each person can be in a different category. Most often you can tell which category an individual is in by looking at the things they own. Consumerism, or the push to buy goods and services, is not a new thing. It has been around since the very first sale or trade centuries ago. Although today, controversy has arisen about the rapidly growing rate of consumerism and how it affects the economy around the world. Is the current rate of consumerism a good or bad effect on the economy? Also, what are some ways to help people understand consumerism better? As I do research and explore, I hope to find the answers to these questions in order to understand the issue better myself.
In 2001, after the longest period of economic expansion the country has witnessed historically, the United States of America entered into its tenth recession since the end of World War II. A recession transpires when at least two quarters of a year are plagued by a sharp downturn of the country’s gross domestic product or GDP. More specifically, when a recession occurs, unemployment increases resulting in less consumer spending which is associated with poor business performances. Studies by the National Bureau of Economic Research (NBER) concluded that during March of that year, a pinnacle in business occurrences declared the end of the expansion and the arrival of an inevitable and damaging though short recession. In a state of urgency, the president at the time, George Bush, encouraged Congress to ratify a stimulus package plan which would seek to improve the standing of the economy. The NBER theorized that the infamous act of terrorism which took place on September 11th placed an even greater strain on the already damaged financial system because it wreaked havoc on many markets and businesses such as the airline industry. Many times, a recession occurs due to economic disasters that are enough of an impact on society to disrupt expenditures of large-scale businesses and individual citizen households. Consequently, aggregate demand decreases along with employment. Factors such as international conflicts, technological fluctuations and the endeavors of monetary legislators all contribute to the overall American economic status.
In economics, a recession occurs when there is a slowdown in the spending of goods and services in the market. A recession causes a drop in employment, GDP growth, investment, as well as societal well-being. All recessions are caused by a specific cause, but the Great Recession of 2007-2009 was caused by a crash in the housing market. This crash was triggered by a steep decline in housing prices. All of a sudden, people bought houses because there was an excessive amount of money in the economy and they thought the price of houses would only increase. (Amadeo, 2012). There was a financial frenzy as the growing desire for homes expanded. People held a lot of faith in the economy and began spending irrationally on houses that they couldn’t afford. This led to overvalued estate and unsustainable mortgage debt. (McConnell, Brue, Flynn, 2012).
dropped 10.9% causing the home market to suffer. Individuals who have subprime mortgagees to finance these less expensive homes are often times forced into foreclosure due to substantial rate changes. In affect, the economy faces acontinuing negative cycle of subprime delinquencies that result in tighter credit and lower home prices.17 A worsening of the American housing market will negatively affect the consumers confidence while at the same time worsening the American economy.18
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
New businesses will take longer to thrive with the United States falling economy. The faltering job market and the deepening slump in housing threaten to hurt consumer spending. Consumers are becoming more conscious of their spending and therefore using cash to pay for smaller necessary purchases. The cost of entertainment and other presumed luxuries may be pushed to the background by most families, when having to choose whether to pay for a bill or treat the family out. Thriving businesses will understand the need to provide a service or product at affordable prices.
During the time of economic crisis starting around 2010 different rationalities have been taken to try and continue economic growth while maintaining a stable government system that is helping and not hurting. When examining government spending and how it affects the growth of the Gross Domestic Product (GDP) there seems to be disagreements on if it was helping or damaging the prospective growth that could be made. By using the Multiplier Effect the government can estimate how to adjust their government spending and how it effects the spending of the consumer, investments and spending of country’s exports.
Money supply is the availability of money in the hands of the public (economy) that can be used to purchase goods, services and securities. In macroeconomics, the price of money is equivalent to the rate of interest. There's an inverse relationship between money supply and interest rates. As money supply increases, interest will decrease. On the other hand, interest will increases as money supply decreases. It is very important to understand that the economy works at market equilibrium. There are several factors affecting money supply; and these contributing factors will be the main focus of this paper. Understanding the basic principle on money supply is imperative to have a good grasp on the macroeconomic impact of money supply on business operations.
Interest rates and the effects of interest rates on the economy concern not only macroeconomists but consumers, savers, borrowers, and lenders. A country may react and change their interest rates, according to the prosperity of their economy. Interest rates, is the percentage usually on an annual basis that is paid by the borrower to the lender for a loan of money (Merriam-Webster). If banks decided not to use interest rates, it would be impossible for others to be able to take out loans and therefore, there would be far less spending money in the economy. With interest rates, this allows banks to take a percentage of the consumer’s money and loan it out to others, thus allowing economic growth to be possible. Interest rates also allow lenders to have a “safety net” which is necessary because there is a possibility that the borrower would be unable to pay back a loan to the bank. A nation’s interest rates can be raised or lowered and these shifts in interest rates correlate directly to aggregate demand. Aggregate demand, is the total demand for final goods and services in an economy at a given time (Business Dictionary). A nation uses interest rates for economic growth or to help prevent inflation. When economic growth is needed a nation would lower their interest rates. However, if a country is concerned about inflation, they may choose to raise their interest rates. When interest rates, raised or lowered, will have a negative or positive impact on consumers, and have a positive or negative impact on investors.
Euromonitor International, 2012, “Consumer buying behaviour in the recession: global online survey - executive briefing”, Euromonitor International, Accessed: 23/05/14
One factor is the increase of income rate. As the diagram shows below, it results the demand curve shift from D to D1. When people get more income, more money will be available for them to spend. Since the purchase power of customers improves, the demand of them increases as well. Make luxury handbags as the example. If a woman earns five hundred pounds per month, she may not be willing to buy a handbag in expensive price because she need to keep life going. But if this woman gets a higher salary of one thousand pounds or even more per month, or she wins a lottery in big amounts, she will be more willing to buy a luxury handbag. Thus the demand of luxury handbags will increase. As the movement of demand curve a shortage will occur. A new equilibrium will appear until the price moves from P to P1. And the quantity will rise from Q to
They can also very well influence the buying behavior of consumers. Teenagers would be more interested in buying bright and loud colors as compared to a middle aged or elderly individual who would prefer decent and subtle designs. A bachelor would prefer spending lavishly on items like beer, bikes, music, clothes, parties, clubs and so on. A young single would hardly be interested in buying a house, property, insurance policies, gold etc. Someone who has a family, on the other hand, would be more interested in buying something which would benefit his family and make their future