Does 70% of the GDP comes from consumers and so thats a danger like after the Depression, and 9/11?
My teacher asked us to write a short answer to this but i didnt understand it, or find anything online?
Answer:
No. In the 1930s, the United States was a major industrial nation. Most of the GDP came from manufacturing, not consumerism. (I guess 100% of the GDP comes from consumerism, since someone has to buy everything.) 9/11 was moreso affected by consumerism, only because our economy has become built around travel and commercial trade, not heavy industry.
I think you mean GNP not gdp The GNP is gross natoinal product
This share of consumption in GDP has been fairly stable and similar over time and across countries. In general it's not a problem. Why? Ultimately we want a big consumption because the only reason for producing is consuming right? However in the long run we need to forego a bit of consumption to save and create capital for future production (and consumption). A big consumption share is only a problem if the foregone savings cuts too deeply into future consumption.
What does this question mean?
GDP = C + I + G + NX
Consumption, Investment and Government Spending.
I would guess C is about 70%, why not and who cares. I think G is about 20%, so sure that seems about right.
I think what the teacher is asking is, is the fact that GDP has such a large component of consumption, that if people refrain from consumption due to fears of 9/11 type events or perhaps depression type events, is that a problem?
However, I don't consider the recession during the 9/11 time period to be caused by 9/11 or reduced consumer expectations. Nor do I consider the cause of the 1929 depression to be due significantly due to poor economic expectations.
The recession during 9/11 proceeded 9/11, so therefore 9/11 could not be the cause. The recession was mainly the result of the FED reducing the money supply some 10 times previous, which led to a reduction of capital and destroyed the tech revolution, which depended heavily on new investment (since it did not sell that much). It also led to a slowdown and eventual retreat of the housing bubble, which took several years to make.
The Great Depression was caused by factors which were similar to previous recessions and depression in the history of the US. According to Keynes, a business cycles are often caused by an over-abundance of capital and so consumption needs stimulating through government spending - which rarely happened at the time. Things that made the Great Depression worse were a lack of money and reduction of trade: -- but such events by themselves were not the direct cause.
Yes, a little less than 70% of the US GDP comes from consumption (69.6%) in 2006. Roughly 9,268.9 Billion dollars were spend on private consumption compared to 2,527.7 Billion dollars (18% of GDP) the government spent on the economy.
The danger of having consumption as a major part of the economy is that when consumer decide to spend less (unemployment, saving more, etc) it will have a great impact on the growth of the economy especially businesses in the short term. In the case of 9/11 people did want to spend because they were unsure about the future. What occurred was there was less consumption and the economy went into a recession.
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