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Consumer Spending
Consumer spending describes what customers purchase to satisfy their daily needs. From the video, I have learned that consumers control the US economy. As consumers keep spending, they keep the economy at bay (Ahmad & Rangaraju, 2019). From the video, 70 percent of economic activity in the US is driven by consumer spending. Consumer spending protects the economy from recession. As consumers purchase goods and services, they create demand, which allows the companies to produce more products. By so doing, they become more profitable and even hire more workers.
The level of economic growth, therefore, is determined by the strength of the consumers. The consumer spending level is determined by the ability of consumers to possess disposable income (Nye, 2019). If the income rises, the demand increases, and this contributes to economic growth. The other factor is per capita, which indicates the standards of living, and this shows the capability of an individual to purchase more products. Income inequality is the other factor that determines the ability of the consumers to buy. If the income rises to the people who are low-income earners, then they are likely to spend more. When the income increases to people who are already high-income earners, they are likely to invest or save, reducing consumer spending. The last thing that affects the level of consumer spending is consumer expectations. If the customer becomes confident, they are likely to spend more, which increases the level of economic growth and vice versa. It is evident that US consumers’ strength ensures stability in the country and, therefore, is a strong contributor to economic growth.
When the spending rate of each consumer rises, then the level of economic growth increases. Conversely, if the level of consumer spending goes down, the rate of inflation will increase. In return, this will cause an economic recession. The rise in technology has created an increase in the rate of consumer spending since technology has put more pressure even to traditional businesses and sectors. The increase in the level of efficiency has also led to a rise in consumer spending. However, there exist various threats to consumer spending, such as a rise in income because people will save more, which inhibits spending. There is also a disconnect between the businesses focused on the global arena and their customers, which will reduce the expenditure of US consumers. Uncertainty will also make people save, which lowers the level of consumer spending. Political instability in the global arena also affects the spending rate of consumers. Besides, having more retirees will reduce spending on specific goods and services. However, whatever I have learned from the video is subject to change due to the global pandemic.
The businesses in the US will change the way they are doing things. Most people will be forced to stay at home, and most of them will lose their jobs. Others will have reduced income and wages. Their level of spending will, in return, go down; as a result, the businesses will have less demand and produce fewer products. The companies will make fewer profits and be forced to lower the level of employees. The firms worldwide will also suffer such problems and produce less due to lower demand. If consumers reduce their spending, the businesses suffer both domestically and globally. Employment and wages are also subject to change as a result of the pandemic. The pandemic has resulted in the closure of other businesses, and some people are even forced to work at home. This reduces the ability profit generation, and the companies will lower the wages of their employees and fire others. Besides, the reduction of consumer spending will lessen the demand for products, which will make the firms reduce the number of workers and even pay fewer wages to those that remain. This will be witnessed worldwide as many of the people in third world countries do not have enough technology that will assist them in working from home. The majority of the people will lose employment, and others forced to receive a low level of wages.
The aging population is increasing in the US, and therefore the businesses will encounter a situation where the majority of the employees are retiring. Retirees have different spending patterns than other generations. They will save more and spend less, which will lower the rate of economic growth. The majority of the aging population spends their income on health services compared to other things. An increase in the number of the aging population in the US might lead to a rise in the rate of inflation because the aged population save more and spend less. The increase in the aging population will mean fewer individuals are working and that the working population’s income will not be enough to sustain economic growth. The effect of the aging population is similar worldwide. Due to their ability to save, there will be less demand, and the businesses will produce less. The firms will get less profit, and the level of the GDP will go down. The effect of the aging population in other parts of the globe has a negative impact on the rate of economic growth and might lead to a high level of recession. A high level of the aged population acts as a threat to consumer spending, which destroys the ability of the firms in the globe to generate a high level of profits. The aged population in the world saves or invests their money, which hinders the money from circulating in the economy. As a result, there will be more money in banks that could increase the level of inflation.
Due to the spread of the pandemic, much has changed, the rate of unemployment has gone up. The creators of this video would have a very different perspective about the consumers who keep the economy at bay. The creators of the video would say that due to reduced consumer spending, the United States economy, together with other parts of the globe, will undergo a severe recession. The consumers do not have the strength as they had before the pandemic, which could boost economic growth, resulting in a recession.
In conclusion, consumers play a significant role in maintaining the economic growth rate. Any threats to consumer spending can cause a decrease in the level of economic growth. The aging population and global pandemic create a lot of uncertainties. People shift to saving and lower their consumption, which could bring about a recession in the future. The governments’ ought to ensure that they formulate the policies that help curb inflation that might be brought by the pandemic.
References
Ahmad, N., & Rangaraju, S. K. (2019). Macroeconomic effects of consumer confidence shock – evidence for state dependence. Journal of Economic Studies; 46(7), 1293-1308. Retrieved from https://search.proquest.com/docview/2434407913?accountid=151051
Nye, J. (2019, November). US CONSUMER KEEPS THE ECONOMY ON AN EVEN KEEL. Econoscope: The Royal Bank of Canada, 43(11), 7. Retrieved from https://search.proquest.com/docview/2332075114?accountid=151051