How does spending less money affect the economy?
Posted by admin in Finance Thursday, 15 September 2011 04:26 5 Comments
There are many people that are unemployed right now, and therefore, can’t be spending their money shopping or whatever and that means spending less money in the economy. How does spending less affect the economy negatively?
It decreases aggregate demand.
Causes it to drag down it financial activity
Which obviously worsens it you know what they say money makes the world go round
The capitalistic economy that our nation was founded upon was based on a cycle. The average american works, buys and sells. If people are not buying it puts a kink in the process. If I sold flowers and no one was buying flowers, I couldn’t pay my gardeners, resulting in even more unemployed Americans. Unfortunately for our economy people are buying so much imported goods and shopping at enormous corporations the average american is not able to survive.
If you are asking with regards to the American economy, spending less can be good and bad. The part of the economy taking the biggest hit is retail. America has swelled on several trillions in consumer spending to the point where folks just don’t need to buy retail products, regardless of how cheap they can get them. You may help the economy by spending more on those retail products you like and less on energy. For instance, do you need to drive to a certain destination today or can you hit a few places at one time tomorrow or the next day and save on gas? Can you go a few hours without AC or without the TV? Spending less on energy will reduce demand which in turn will reduce the total cost that we all spend on it because the supply will grow in excess.
Housing – well, that’s another deal altogether – buy a house now or in a few months while housing prices are low. They’ll go back up in a few years.
it affects the demand and supply