Consumer Spending: How it helps the Economy. - Essay Example

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Consumer Spending: How it helps the Economy.

Spending represents a way which cash or liquidity moves from one sector of the economy to the other. Once the is a fall in consumer spending, it means a reduction in the purchasing power of the citizens, less goods and services will be purchased, and as such most companies will cut down on their demands of raw materials, labour and capital. There is no economy where goods and services are produced for fun, so once consumers spending falls; there is a spiral effect on the economy as a whole. No wonder, adverts such as, “1 am going out of business”, laying off of workers, increase in those seeking unemployment benefits have occupied popular channels in world news while reporters use it in their top page of breaking news.
Against this background, this paper focuses on the recent credit crisis in the US economy. In the first part of the paper, the problem statement and research questions will be developed, part two of the paper focuses on the limitation and importance of the study, while part three examines relevant literature in line with the problem statement. In the last part of the paper, the paper discusses findings in the form of a summary and provides recommendation and the way forward.
Thus , this paper is aimed at looking at how the recent credit crunch is affecting banks and how this in turn affects international business. The recent credit crunch in the U.S is a cause for concern for governments, regulatory bodies, businesses, individuals, stock markets, etc. This issue is affecting world trade in that it is currently making it difficult for banks to provide loans to businesses given the significant losses encountered so far as following prior sub-prime mortgage lending. Following from the integration of capital markets, the credit crunch will lead to a fall in stock markets in the US and this may be transmitted through contagion to other major stock markets of the world such as the U.K, China, Japan, EU, ...Show more

Summary

Transaction costs economics and the new institutional economics have provided ways in which traditional economics model (On the assumptions of maximising behaviour by individuals) can be used in understanding the relationship between institutions and the reform process (…
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