How is spending money good for the economy?
Answer:
Most people do not understand this basic principle, because it is no longer taught what makes the economy go into recession.
If the economy is at full employment, then if you either save or spend your money it makes no difference: it goes into the economy either way. If you hoard your money, it might mean we cannot invest it, but this is rare and unimportant. Also, the fed produces enough money so that all that can be invested will be -- if there is no inflation.
Under the real Keynesian model, however, there is too much savings and investment and not enough spending, which causes unemployment. If we spend money, it will increase output.
because it supports business, the basis of the economy
cause it leaves your pocket and goes into there's.
good for others
Money is energy, just like everything else is energy. So all we are really doing is moving energy in the form of money.
In a good economy, the more the dollar is spent, the more people it touches. Then the more people are required to produce inventory to be sold in the market place. And those people will spend too, and as the money-ball keeps moving around, the more people get touched. Peripheral jobs are also stimulated, fast foods, entertainment, tires for the car to get to work, etc.
Think of it this way: every time you spend a dollar it contributes to employing other people. If we all stopped going to the movies there would be unemployed ushers and soda salespeople. If we all started walking and saved the money, autoworkers and mechanics would lose their jobs. A story from a few centuries ago, called The Fable of the Bees (you should have no trouble finding it online) illustrates the theory.
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