Current Economics Analysis: Consumer Spending, Payroll Tax, GDP Growth, Inflation and Unemployment Rate

Running head: CURRENT ECONOMICS ANALYSIS
Current Economics Analysis
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1CURRENT ECONOMICS ANALYSIS
Table of Contents
Problem 1.........................................................................................................................................2
Problem 2.........................................................................................................................................2
Problem 3.........................................................................................................................................2
Problem a.....................................................................................................................................2
Problem b.....................................................................................................................................3
Question 1........................................................................................................................................3
Question a....................................................................................................................................3
Question b....................................................................................................................................4
Question c....................................................................................................................................4
References list..................................................................................................................................6

2CURRENT ECONOMICS ANALYSIS
Problem 1
Consumer spending is an important component of aggregate demand. During increase in
stock market value, consumers in the economy find themselves wealthier. This increases
spending by consumers. The increase in consumption spending increases aggregate demand.
Aggregate demand fluctuates with plunges in stock market. In times of crash in crash,
consumers cut back spending and firms reduce their investment (Goodwin et al. 2015). This
lowers aggregate demand at the given level of price. Reverse is the case at times of increase in
stock market value.
Problem 2
A typical payroll tax reduces disposable income of American consumers. With a lower
disposable income consumer has the tendency to lower their consumption as much as possible.
The decline in demand and spending on groceries mean a lower income for grocery stores like
Wal-Mart. The lower sales volume reduces profitability of the company. As reported in the
article there are nearly 46 percent of the consumers who are unable to spend as much as before
the payroll tax.
Problem 3
Problem a
Give that marginal propensity to consume was 0.9.
The expiration of payroll tax reduces consumers’ income by $110 billion. Given the MPC, tax
would lower consumption by ($110 * 0.9) = $99 billion.