Tag: consumer confidence

Many commentators (and politicians) have suggested that the most painless route out of the recession is for us all to shop until we drop. If we can prevent consumer spending from falling too far then this may help maintain oonsumer confidence and therefore aggregate demand. So, is it our patriotic duty to shop? Should we all be out there helping in our own small way to prevent recession, or will more shopping just land us even further in debt and therefore make us worse off? The articles linked to below look at various aspects of the ‘shopping debate’ and consider whether retail therapy is also economic therapy.

Your country needs you … to buy some underpants Guardian (20/12/08)
Beyond retail therapy Guardian (8/1/09)
Shopping is no panacea for a broken economy Guardian (28/12/08)
High street counter-offensive Guardian (31/12/08)
Should shopping be a patriotic duty? BBC News Online (19/12/08)

Questions

  1. How could the need both to reduce debt and to maintain aggregate demand be reconciled?
  2. Discuss the extent to which an increase in consumer expenditure is (a) a necessary and (b) a sufficient condition for a recovery of the economy?
  3. To what extent will long-term aggregate supply depend on the maintenance of aggregate demand?
  4. If shopping is your patriotic duty, what types of shopping would be best for the country?

It is something of a media sport in these recessionary times to find ‘economic scapegoats’. One minute the recession is the fault of the banks and their poor lending practices; the next minute it is the fault of the media themselves, who are constantly reporting doom and gloom; the next minute it is the fault of the politicians, who have failed to react quickly enough to the economic uncertainties; the list goes on! However, the one group that is rarely blamed is ‘us’ – the consumers. Given that the state of the economy is the outcome of our collective decisions, it could be said that we have no real right to complain, as our collective lack of confidence could be what has caused much of the current situation. As James Meek puts it in the article below:

What makes the situation peculiar is that the crisis that threatens us also seems to be us; we are simultaneously menaced by the wave, and exist as elements of the wave. After all, that is what an economic crisis is: the sum of all the actions of billions of people around the world, deciding whether to lend or hoard, borrow or save, sell or buy, move or stay, hire or fire, study or look for work, be pessimistic or optimistic.

To live in remarkable times Guardian (5/1/09)

Questions

  1. Explain how changes in consumer confidence can affect the level of aggregate demand.
  2. Examine the importance of consumer confidence in determining the length and depth of a recession.
  3. Discuss policies that the government can implement to try to boost consumer confidence.
  4. Analyse the impact on an economy of a prolonged period of poor consumer confidence.