Assignment topics and overview

¶ … economy has been impacted by a number of factors which are increasing the overall amounts of volatility. To fully understand why certain polices have been perused requires examining the decisions that were made and the effects they are having on everyone. This will be accomplished by looking at the Keynesian economic philosophy, the role of consumer confidence and how it impacts aggregate demand. Together, these elements will highlight the underlying strengths and weakness.

The chapter that was examined is illustrating the challenges that can impact the economy during recessions. The Keynesian theory is providing governments with the ability to deal with these issues and reduce the negative effects of these events on everyone. This is because it understands the primary drivers of growth most notably: consumption, investment, government spending and net exports. These different areas will have an impact on aggregate demand and ensure that consumers continue to spend money. This will have a positive or negative influence on the unemployment rate (depending upon the underlying amounts of economic activity which is occurring). (Schiller, 2010)

According to Keynes, during times of severe economic distress, these variables will determine if a recession occurs and the length of it. This is based upon events which happened during the Great Depression. In this case, consumer demand declined dramatically in 1929 and continued well into the 1930s. One of the ways that helped to restore full unemployment and economic growth was through the industrialization of different economies from World War II. This provided them with added levels of aggregate demand (based upon the large amounts of government spending). (Schiller, 2010)

These experiences helped Keynes to realize that government can provide added levels of stimulus during times of economic distress. It will help to encourage consumer spending and have positive effects on businesses. They will begin hiring new workers and economic growth will resume back to normal levels. (Schiller, 2010)

To achieve these objectives others tools can be utilized in the process to spur demand. The most notable is to reduce taxes in order to encourage increased amounts of spending. This has been utilized during the 1960s, 1980s, the early 2000s and in the recent recession (from 2008 to 2009) in order to stimulate economic growth. The results are that this helps to encourage economic activity. (Schiller, 2010)

However, it will also lead to an increase in the national debt with the government utilizing deficit spending to achieve these objectives. Keynes believes that this is something which is acceptable. This is because he feels that these levels will decline through an increase in the total amounts of taxes received from more people contributing to economic growth. (Schiller, 2010)

These insights matter to me personally, by describing how different events occur and the way to reduce the negative consequences associated with them. This is because recessions are the direct result of a decrease in consumer spending. These reductions will have ripple effects on economic activity and the way it impacts hiring / business decisions over the long-term. (Schiller, 2010)

When this is utilized in conjunction with a tax cut, it will have a dramatic impact on the economy by encouraging to consumers to spend more money. This is the result of them having these funds available, which leads to them utilizing them in the economy. In some cases, this occurs with them spending the money on basic necessities. While at other times, they will use it to purchase large big ticket items (such as: automobiles). The increases in the deficit; are a normal effect and will equalize itself out through an improvement in the total amounts of taxes that are collected. (Schiller, 2010)

For me, these insights are providing greater clarity about what actions must be taken to avert recessions. It is also illustrating how the headlines in the news media about government policies may not be completely accurate (i.e. The problems with the national debt). Instead, this is illustrating how these changes are a necessary outcome. That will help to stabilize the economy and prevent recessions from becoming worse. This is the key for avoiding downward spirals in economic activity and the negative long-term effects it will have on everyone's standard of living. (Schiller, 2010)

What has been happening to consumer confidence over the last six months? What explanation for consumer confidence does the memo give?

In the last six months, consumer confidence has remained volatile. This is because there have been concerns about the impact of the fiscal situation in Washington and the high number of people who continue to have trouble finding work. These issues have caused figures to remain very unstable. Evidence of this can be seen with them coming in between 58.4 and 76.9. This is indicating that confidence has been somewhat uneven during this time. ("United States Consumer Confidence," 2013) ("The Conference Board's Consumer Confidence Index," 2013) ("The Conference Board Economic Forecast," 2013)

The analysis is showing how the increase in the payroll taxes and the slowdown in government spending have caused economic activity to decelerate in the last several months. However, the automobile and housing sectors are seeing considerable signs of resilience. This is because of favorable policies with Federal Reserve keeping interest rates at low levels. The strategy has made it easier for consumers to make large big ticket purchases (which are increasing their underlying levels of confidence). This has created a situation where different headwinds are impacting economic growth. ("The Conference Board Economic Forecast," 2013) ("The Conference Board Economic Forecast," 2013)