Economics is the study of how people make choices under conditions of scarcity. Lack of resources including land, labor, capital, and entrepreneurship is what makes thus scarcity which gives us a choice in business, I.e. opportunity cost which is the judgement to use the best time and resources in a given situation. Macroeconomics is the study of aggregate sectors of the economy, these sectors include: households, financial markets (banks etc.), the government, firms or businesses, and the rest of the world by imports and exports. The transfer of the dollar between these mentioned sectors, entail a consistent flow of velocity if the economy is successful. Instances like the fiscal cliff or the budget sequestration will show a dramatic change in flow of the dollar throughout the economy which will indefinitely affect us all as consumers, homeowners and workers whether we are employed, self-employed or dependents. One minor change in the value of a particular factor may fluctuate our gross domestic product value which will directly affect employment, inflation, interest rates and so much more.
As you can tell in the circular flow model the sectors are all connected in some form. Average households will use their disposable income created by working to either save to invest in the financial markets or for consumption of goods or services created by other firms. The Financial market can then use our savings to borrow to the Government or in financing for firms like the start-ups in Silicon Valley. When budget is constraint the financial market will usually either increase interest rates or succumb to borrowing from countries like China or Japan who will happily bail us out in exchange for the long term benefits. The Government will use their borrowing and tax income to pay for their own expenditures, purchase from firms and provide the unfortunate households their transfer payments like SSI, wellfare, etc.. The firms will then rake in their hard earned revenue to pay the workers of households, pay taxes, and contribute to the world economies through imports and exports.
President Obama’s push for educating two million workers for jobs in high demanded industries has done very well to stimulate the economy whether or not you may be a fan of his presidency. Education is the main cause of low income families and unemployment rates which with his backing has increased consumption and production which has sped our economy’s velocity. Tim Cooks recollection of manufacturing Apple’s products back in silicon valley will also increase production and since it will increase US workers it should increase consumption which will in turn help guide our GDP growth back on track. With the higher velocity of our economy will grow our housing market back up, reduce unemployment and increase wages. Although, with the Great Recession we must learn from our mistakes and find a healthy balance between our savings and consumption to help prevent another great recession from occurring.
