#Economics #income #spending

The Source Of This Graph - Trading Economics ( A special website which is known to post visible and proven data )

Graph Info - 1

• Graph -: US ( 2007 - 2017 )

• Graph Presentation -: The graph represents the value by presenting income higher than spending, their are several reasons for it, we going to address the economical reasons possible

• Study Of Graph -: Their are many reasons for the spending be lower than income earned as one of the reasons go by Savings behavior, savings is important for the time you are gonna priorities in future, the second reason would be debt repayment, debt is a pretty important reason of the saving of income as US is under a huge debt, the whole nation has a debt of 123 % of debt while 340 million citizens are still pending to pay off their dept, the third reason might be Income Growth, income growth is mostly a want to be achieved by everyone thus its a practice in most of the countries

• Reduction In Tax -: As you can see the graphs potential shows how increasing the disposable income is, including the taxes and every external spending, the disposable income increased by a huge amount as taxes were highly decreased, ( TCJA ) this acts was done by the organization of US which was Tax Cut And Jobs Act, this organization was passed at 2017 December, this resulted in taxes being cut and a increase in disposable income, taxes were decreased as the US has a goal to increase the economy of the US

• Increase In Spending -: As US handled the 2008 economic crisis, taxes has a reduction resulting to a increase in disposable income, this results to a confidence in spending, that is why their was a increase in the consumer spending

Wealth

• Wealth is measured as the total value of assets a individual or a firms or businesses own

• Wealth Measurement -: Wealth is measured as the total assets owned by a individual minus their ( Liabilities - A liability is a debt or a obligation of a individual or a company owned to a another party )

• When the value of assets such as property or investments, increases it is called Positive wealth effect

• Conspicuous Consumption -: Conspicuous consumption occurs when a individual purchases goods or services for their identity and image

• Example Of Conspicuous Consumption -: When a person buys rich cars, houses and etc, this means the person is purchasing goods in a conspicuous way

• When assets lose their value, the wealth effect is called negative as value of the assets decrease, thus the value of their loan might exceed, this is called Negative Equity also known as Negative Wealth Effect

Case Study - Negative Equity

• Yoshie Sano bought an apartment in Los Angeles for $1,000,000 in 2007. She borrowed $800,000 from the bank and paid a deposit of $200,000.

• In December 2008 the property market crashed due to the global financial crisis, causing Yoshie’s apartment to fall in value to $700,000. She is in negative equity as the value of the existing mortgage is greater than the value of the property.

Interest Rates

• Interest rates determine the cost of borrowing or lending money

• Borrowing becomes more expensive and therefore the demand for loans falls, which leads to less consumer spending

• Savings may become more attractive due to the higher return, so individuals may save more and spend less

• If an individual has an existing loan or mortgage, the increase in interest repayments is likely to cause a fall in disposable incomes, so spending falls.

Confidence Levels

• The level of spending in an economy is heavily influenced by the level of consumer and business confidence in an economy. During a recession or a period of low economic growth

• At these periods people may prefer to save money rather than having a higher proportion on spending money on goods or services

• By contrast, during an economic boom or a period of high economic growth, people and firms feel confident about the future and therefore purchase more goods and services. The sale of luxury items such as restaurant meals, spa treatments and foreign holidays increases

•  Firms may invest more in new equipment and technology because they feel confident about the future. This creates jobs and fuels spending, borrowing and saving.