Microeconomics research report

Article: U.S. consumer spending raises modestly, inflation cools

The article discuses a modest increase in consumer spending which is an indication of a steady growth in the economy and that the economy was on the rebound.  Consumer spending relates to the demand part of supply and demand which is the demand for the products supplied in the market. Consumer spending refers to market value of overall consumption by the consumer with a certain area of the market, over specific period and price level. It is the demand for the products in market that are bought everyday so as to satisfy the daily household needs.

The consumption includes both services and goods provided at the market place. The things that consumers buy on daily basis create the demand which in turns maintains production by firms (Sloman, Keith and Garrett, 5). Demand – consumer spending – is determined by different factors which include disposable income, income per capita, household debt and inflation. Consumer spending drives demand and is therefore, the major driving force of the economy (Mochrie, 253). These are the factors that affect the purchasing power of consumers and hence determining the demand level.

Consumer spending indicates the level of demand of goods and services in an economy which in turn determines the level of economic activity any economy. Consumption of goods and services drives the production activities of the economy and the operations of firms in United States. In United States, the economy is majorly driven by the behavior of consumers in terms of their spending habits. Increased consumer spending means that they are in a good financial position and hence, more demand for goods and services and eventually the gross domestic product of a country (Mochrie, 253).  A decrease or down turn in consumer spending may lead to damages in the economy since a decrease in consumer demand means a slow economic growth. On the other hand, if the demand of goods and services exceeds the ability of firms to produce goods and provide services there will be an increase in prices.  Higher increase in prices leads to inflation (Mochrie, 253).

The government uses various policies to influence consumer spending which in turn affect the aggregate demand for products in the economy. These involve interest rates and taxation. Interest rates refers to the amount that a lender charges a borrower for using some assets which include money, large assets and even consumer goods (Baumol, and Blinder,538). The government determines the interest that banks charge on loans by capping the inter-bank rate. This determines the rate at which the money in the marker is lend to borrowers both institutional and individuals. Taxation is the tool used by the government to generate revenue and influence the economic growth of a country.

The government can increase or decrease the interest rates so as to raise the level of consumer spending or reduce the spending level. This is in turn affecting the behavior of consumers in regard to saving or spending of the income at their disposal. An increase in the rates of interest makes the consumers to reduce their spending and save more of their income while a decrease in the rate leads to more spending among the consumers.  The motivation to save can be attribute to the understanding that there will be higher return rates and more spending is driven by more purchasing power of their money (Baumol, and Blinder, 538).

In order to influence the consumer spending habits, strategies adopted should focus on consumer buying behavior. These include marketing campaigns and using high quality to provide value for their money. Marketing campaigns involves communicating a certain message to customers to present the benefits of various services and products from the business (Boone & David, 173). This involves showing the consumers various materials aimed at promoting the products or services by holding their attention to bring about the influence. Marketing involves communicating to the consumers on how a product will address their needs and providing the ways in which such products are better than others in the market. It also involves communicating to the consumers on the experience they could achieve for using the products and hence making them to spend more. Provision of high quality products includes offering a product at lower price while not compromising on the value (Boone & David, 173).

Marketing efforts helps in influencing the decision to be made by customers and when done on regular basis they make a person to opt for a certain product. Others may indulge in frivolous buying due to the marketing campaigns and this increases their spending (Boone &David, 173).. High quality will make the consumers to decide to buy the products due to value they are to gain from it. Even where the consumers had made up their decisions on buying, they can be influence to have quality for their money (Boone & David ,173)..

Conclusion

In the future, the government can be expected to influence the consumer spending or demand by changing interest rates and taxation policies to maintain constant growth in the economy. On the other hand, business will increase their marketing efforts through high quality products to influence consumer buying.

Works cited

Sloman, John, Keith Norris, and Dean Garrett. Principles of Economics (aus) Vs. Sydney: Pearson Education Australia, 2013. 5-6

Mochrie, Robert. Intermediate Microeconomics. London: Palgrave Macmillan, 2015. 253

Baumol, William J, and Alan S. Blinder. Economics: Principles and Policy. Mason, OH: South-Western/Cengage Learning, 2009. 538

Boone, Louis E., and David L. Kurtz. Contemporary marketing. Cengage learning, 2013.

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