Book Chapter

Booms & Busts: As smart as they are, the pros can't remove all the bone-rattling bumps

Wolfe, Leonard

2011,2012

Overview

Countries emerging from centuries of rural poverty, like China and India, can grow at a rate of 9% or 10% a year for some time without imploding. But a mature economy like that of the U.S. would soon overheat and boil with inflation. Better for the U.S. to grow steadily year after year at a rate of 3% or 4%. Unfortunately, economies are not so well behaved. Growth over time is marked by booms and busts. This chapter addresses several questions regarding the global economy. Some of these questions are—what do the experts mean when they say the economy is doing well or is doing poorly, what makes up the GDP, what makes the GDP grow, and when is the economy booming. One of the questions addressed in the chapter—what is productivity. It is a function of the economy that laymen do not pay much attention to, but one that the experts focus on. Growth in productivity means that there are more goods and services available to satisfy consumer demands without consumers having to battle one another. Another question addressed is—how does an overheated economy cool down. Often the Federal Reserve cools it down by raising interest rates. It becomes more expensive for businesses and consumers to borrow money, so demand falls. Demand is not just what people want; it is what they have the money to buy. But if demand falls too far, the economy grinds to a halt.

• Publisher: John Wiley & Sons, Incorporated,John Wiley & Sons, Inc
• Subject: demand / ECONOMICS / economy / Federal Reserve / productivity / recession
• ISBN: 9781118118061, 1118118065