03-17-2009, 02:27 AM
Dear CFANerd
Each economy in this world is based on consumption spending and consumers, no matter what the size of economy is, for example Somali v/s. US economy. Can we imagine any economy or market where there are no consumers? The size and activity in economy and markets is dependent upon consumption spending by consumers. The aggregate demand of goods and services by all consumers defines size of the economy and economic activity itself. Now, the problem is, in recession, this aggregate demand of goods and services declines due to holding money and spending by consumers due to bad news and uncertainties about future. This holding back consumption spending negatively effects overall economic activity, lowers business profits, cause business closures and eventually more un-employment. With ripple effect this whole phenomena further cause more un-employment, more miseries, and more unrest. Therefore, in recession, through changes in monetary and fiscal policies, each government tries to stimulate consumption spending again to regenerate economic activity. Governments effect this aggregate demand of goods and services, in times of recession, through large government spending and tax cuts along-with supporting monetary policies.
Now, we can see that if masses of population (which are consumers of necessities and luxuries both kind of goods and services) would leave a country due to various reasons, would lower aggregate demand of goods and services in the economy, resulting more negative impact on economy as compared to economies of countries where population remains in the country even in recession times.
Problem with gulf countries (including Dubai or UAE) is, dominant portion of their population is non permanent residents. Thus, such governments do not want to spend money on projects for welfare of these foreign workers. Interesting thing is, such governments want to boost economic activity without directly spending government money on such un-owned residents, so how consumption spending and aggregate demand of goods and services would increase, is really an interesting situation. Or probably they donât care. Their nationals and governments have enough money to maintain present lavish life style till the world economies recover again from recession and start foreign investments and tourism again in such countries.
By the way, what is wrong in âconsumption based economyâ and spend, spend, spend. Spending leads to economic activity and consumption is dependent upon disposable income. If people in USA have large disposable income, so they can do more consumption spending. Even human bodies get sick, so do economies in recession time (which is a kind of sickness). Just like human bodies, economies would have to bear un-easy feelings till recovery.
Regards
Each economy in this world is based on consumption spending and consumers, no matter what the size of economy is, for example Somali v/s. US economy. Can we imagine any economy or market where there are no consumers? The size and activity in economy and markets is dependent upon consumption spending by consumers. The aggregate demand of goods and services by all consumers defines size of the economy and economic activity itself. Now, the problem is, in recession, this aggregate demand of goods and services declines due to holding money and spending by consumers due to bad news and uncertainties about future. This holding back consumption spending negatively effects overall economic activity, lowers business profits, cause business closures and eventually more un-employment. With ripple effect this whole phenomena further cause more un-employment, more miseries, and more unrest. Therefore, in recession, through changes in monetary and fiscal policies, each government tries to stimulate consumption spending again to regenerate economic activity. Governments effect this aggregate demand of goods and services, in times of recession, through large government spending and tax cuts along-with supporting monetary policies.
Now, we can see that if masses of population (which are consumers of necessities and luxuries both kind of goods and services) would leave a country due to various reasons, would lower aggregate demand of goods and services in the economy, resulting more negative impact on economy as compared to economies of countries where population remains in the country even in recession times.
Problem with gulf countries (including Dubai or UAE) is, dominant portion of their population is non permanent residents. Thus, such governments do not want to spend money on projects for welfare of these foreign workers. Interesting thing is, such governments want to boost economic activity without directly spending government money on such un-owned residents, so how consumption spending and aggregate demand of goods and services would increase, is really an interesting situation. Or probably they donât care. Their nationals and governments have enough money to maintain present lavish life style till the world economies recover again from recession and start foreign investments and tourism again in such countries.
By the way, what is wrong in âconsumption based economyâ and spend, spend, spend. Spending leads to economic activity and consumption is dependent upon disposable income. If people in USA have large disposable income, so they can do more consumption spending. Even human bodies get sick, so do economies in recession time (which is a kind of sickness). Just like human bodies, economies would have to bear un-easy feelings till recovery.
Regards