Economic Concepts

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Economic Concept

The American economy over the past one year have been depreciating following the effects of COVID-19. However, the country’s saving is what kept it moving on despite the hard economic times. This article discusses economic concepts of the article written by ‘De Koning, Kees (2020): Savings; the least understood economic concept, the U.S. case’. The article defines savings as the financial sense that elaborates a postponed consumption. Therefore, before savings is done, there is need for the household to first have income. As such, the American largest form of savings are from two main sources that include pension and net worth of homes. In 2019 alone, the total savings amount $52 trillion.

After reading through the article, I agree with the various economic concepts presented on the article as they are the one that was discussed in the course outline. It is true that the financial power of the federal government can largely come from the taxes that are collected as well as borrowings. At times, the many projects that the government intend to complete within a given speculated time needs to be addressed through borrowing funds from the other states whose economy is better than that of ours. As such, the government can invest the borrowed money in various projects and the revenue collected can be given back. The other option of generating income is through ensuing that there is enough tax collected that can enable the government to continue with the services they offer as well as settling their debts with other nations.

Even though the country may be willing to increase projects through the borrowed money, it may be difficult to accomplish this as there are much debts especially by the households. For instance, there are loans that are associated with the cars, student’s loans, and other personal loans. Then the question that many economists will always ask is whether the American government should come to rescue the economy using the federal reserves. It is because when the country solely depends on borrowings, it is likely to borrow huge amount of funds for them to invest in a tangible investment. Again, when large amount of money is borrowed, then it makes it government’s responsibility to come up with projects that tends to require the investment of such capital. When considering the current state of the debt, the country is standing at the high amount of about 106.9% GDP and this compared to the government’s revenue, it is about six times. Again, the effect of high borrowing is that the government will be forced to use the revenue collected to settle the debt that the country has been borrowing.

The article again explains well on the issue of using the money that is in the households that are currently under reserve and this can be used to fund the various schemes that have 0% interests. A good example is the one that is outlined in the article that discusses about the Tessa scheme. This is an example of temporary spend and it helps the country turn the money that are reserved for future to be consumed currently and the future income could be used to replenish the stocks. This although have economic effect especially when it comes to the unemployment crisis that have been an issue affecting the America for long time.

Some of the recommendations should include the country focusing on improving on the agricultural sector. This will employ many unemployed people and at the same time supply enough food to the country. This has the benefit to the country because it will minimize on the expenses that the country has been using on the importing food from other countries. Also, local production can be of help to the local manufacturing industries as it will have enough raw materials that can enable the industries to continue operating (De Koning, 2020). These industries will also provide more job opportunities for the people who have been jobless for many years. It will help the economy by creating opportunities of job and eliminating the crises of the unemployment issues.

Another way that the government can participate in empowering the economy is avoiding the use of the borrowed funds for other purposes that do not return their revenue. Such uses include paying of salaries that do not add any value to the economy. Therefore, the money borrowed can be well used especially in improving existing projects and coming up with other new projects that will generate the money obtained to settle the deaths. These projects will at the same time create more jobs and the net effect will be seen in the amount of the tax collected every year from the workers who have been granted the opportunity to work through the creation of job opportunities. Therefore, the objectives of every government is to have sustainable programs that will continue generating income for the country even during the recession as this.

In conclusion, the concepts handled in the article and the one discussed in class plays crucial role in having depth understanding of the economy and how various activities can be done to help the government have a sustainable economy. Various stakeholders need to come into place to ensure that such sustainability is achieved and the economy of the country continues to remain stable.

References

De Koning, K. (2020). Savings; the least understood economic concept, the US case.