Question

Describe your understanding of a) a growing economy and the role the bank plays

b) The importance of consumption in relationship to employment

c) a shrinking economy and how it impacts everyone in the society

d) What typically drives the economy?

Answer 1

A) The role of banks in economic develpment is to remove the deficiency of capital by stimulating savings and investments. A sound banking system mobilizes the small and scattered savings of the community, and makes them available for investment in productive enterprises. In any plan of economic development, capital occupies a position of strategic importance. No economic development of sizable magnitude is possible unless there is an adequate degree of capital formation.

B) Consumption plays an important role in the income and employment theory under Keynesian economics as put forth by John Maynard Keynes. Keynesian theory states that if consuming goods and services does not increase the demand for such goods and services, it leads to a fall in production. A decrease in production means businesses will lay off workers, resulting in unemployment. Consumption thus helps determine the income and output in an economy.

C) For the general society, the main impact is the cost of living. The shrinking economy generally leads to an increased cost of living. During the shrinking economy businessses often have to increase their prices to make up for shortfall in sales and turnover. this is known as snowball effect. The country's currency is also generally affected during a shrinking economy which contributes to inflation of prices.

D) In the United States, economic growth is driven oftentimes by consumer spending and business investment. If consumers are buying homes,for example, home buildings, contractors, and construction workers will experience economic growth. Businesses also drive the economy when they hire workers, raise wages, and invest in growing their business. A company that buys a new manufacturing plant or invests in new technologies creates jobs, spending, which leads to growth in the economy.