The article by Lucia Mutikani is saying that the spending that is happening, is helping the economy weather the rising oil prices and maintains the steady growth momentum. The Commerce Department declares that the spending rose 0.2 percent which answers why "spending is the only modest driver of growth this year." The federal chairmen Ben Bernanke stated that the central bank needs to prepare the $600 billion bond buying program should keep low interest rates.
Consumer spending takes up 70 percent of the economic activity in the United States. This percentage is being affected by the rising gasoline and food prices. With the people's money being taken from buying the necessity of gas, they're not having as much money for their wants. The consumers will have to rethink their spending when they have to use more of their income for gasoline and food which are needs because they need gas and food in order to keep working for money. As the prices of gasoline keep increasing, the factory demands will go down because the people are not making more money. A steady pay will not allow the consumers to change the way they spend their income. Unemployment in the factories could occur as the gas prices raise.
http://news.yahoo.com/s/nm/20110228/bs_nm/us_usa_economy;_ylt=A0LEaoAr92tNGygAk0qyBhIF;_ylu=X3oDMTJmaWUwNDBoBGFzc2V0A25tLzIwMTEwMjI4L3VzX3VzYV9lY29ub215BGNwb3MDMgRwb3MDNgRzZWMDeW5fdG9wX3N0b3J5BHNsawNjb25zdW1lcnNwZW4-
5 comments:
Great article choice. You note the desire to keep interest rates low which relates to fiscal policy which we will more than likely discuss early next week. Why do you think it is important for our economy's growth to keep interest rates low currently? How do interest rates affect consumer spending and why does that matter?
Great analysis. Is there any way you could think of to keep the trend of increasing consumer spending in the face of rising gas prices?
The economy needs to keep low interest rates because if they are increased, the borrower's will not even begin to look at the borrowing of money. Interest rates affect consumer spending because the more we are having to pay for the borrowed money, the less income we will have to spend on our necessities. It matters to each person because the factories and jobs of the people will have a decrease in how they are receiving their money. Most people are going to have to raise their taxes in order to make up for the loss of the loan.
Those manufacturers that sell items that aren't categorized as a necessity, will see a drastic decrease in quantity demanded. Maybe there will be a drop in those prices in order to cater to the many people who cannot afford the extras. This could increase consumer spending.
If it becomes too cost ineffective, some companies may choose to move their production overseas. The companies would already be seeing higher rates of unemployment, so it would seem like the best decision to simply outsource. However, this would cause an even higher unemployment rate. Although this would be more cost-effective for the companies, this would also cause the US to become even more dependent on foreign countries and their work forces.
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