What you should know about the economy, consumer spending habits and supply chains

By James Highland, journalism and economics student at the University of Iowa. (He writes about economics, finance and more at www.dentalinsurance.net)

Economy

Economies of countries go up and down, depending on a lot of factors. A robust economy is one that has an expanding Gross Domestic Product or GDP. The GDP is the total economic output of a country or region. In poor economic times, the GDP will retract, or grow at a very slow rate. Large established economies like the United States do not expand at fast rates. Established nations have much less room for growth. There are of course different ideas on economics and how to foster growth in order to have a prosperous economy. There are dozens of economic schools of thought, but the main ones are supply side and Keynesian economics.

Supply side

This theory of economics is one that wants a marketplace that the government leaves alone. Supply side economists favour tax cuts and remarkably few regulations. Economists that support Keynesian economic ideas are usually ones that feel government gets in the way. They feel that for a country's economy to prosper, it should rely on people and their ideas and businesses.

Keynesian economics

People who favour Keynesian economics feel that governments are necessary to intervene. They would favour more government regulations, and higher taxes to support more programs. A Keynesian economist also favours the idea that a government can spend money to get out of a recession. For example, during economic downturns, they would favour spending money on public works project. Just like political ideas, most economists do not favour one or the other completely. They may have certain Keynesian ideas and certain supply side ideas.

Supply chains

A supply chain is a system in which a product moves from an organisation down to the customer. A supply chain can involve multiple companies and many employees. A great example of a supply chain would be an item at the grocery store. A farmer sells wheat to a cereal company, they in turn, make cereal. Then the product is shipped to a store for the consumer to purchase. This is a basic supply chain; others are much more complicated. An efficient supply chain will save money for customers and businesses, and improve the speed of commerce.

Consumer spending

Consumer spending drives most economies, this is especially true in western countries. When someone gets a pay cheque, they have choices of where to spend their money. Consumers spend money on housing, food, gas, and discretionary spending. Companies then receive money and pay employees, buy supplies, and pay taxes. In poor economic times, consumer spending plummets. This can cause a domino effect, hurting the economy further. Consumer confidence is closely tracked by economists, because this often can be a tell-tale sign where things are heading.
 
Many people get confused by economics, and the main reason is bias in information. People on television or in the newspaper write based upon their personal views, which clouds the picture. Once one understands what causes economic growth, one can understand how the economy works. All theories aside, the economies of the world work quite simply.