Economics is a study on the production, allocation and distribution of resources in business environments. Nations closely watched their economic information to determine if their economy is expanding or contracting. Economic indicators are the most common way nations analyze various economic, financial or other information. Historical information provides economists with benchmarks to measure against current economic indicators. These benchmarks allow economists to make judgments about whether the nation’s economy is trending toward a crisis.
Loose Monetary Policy
Nations often use a central bank or federal reserve system for managing their monetary policy. This centralized government agency is responsible for reviewing national economic information and creating policies relating to credit, interest rates and money supply. Nations with a loose monetary policy can create dangerous economic situations. Loose monetary policies often increase inflation, which is classically defined as too many dollars chasing too few goods. Rampant inflation often reduces the purchasing power of individuals and businesses, and makes the country’s currency less favorable for foreign investment.
Increase in Business Risk
Businesses often make several investments in financial instruments for various reasons. Investments are commonly made to generate passive income streams, creating strategic business relationships or improve current business operations. Each of these investments includes some level of risk. Risk is the possibility that the decision will not provide a positive rate of return and create difficult economic situations for the business and the overall economy. Businesses investing in extremely risky insurance, such as collateralized debt obligations backed by subprime mortgages, can signal an economic crisis trend. If these investments go sour, businesses may not have the capital available to sustain business operations.
Government oversight is a common economic crisis trend. Governments often create regulations or laws to ensure businesses ethically and do not harm consumers. Government oversight can create economic crises with tight or loose regulatory policies. Types regulatory policy is severely restrict the company’s ability to produce consumer goods or services. This causes businesses to stagnate and lay off workers to compensate for low revenue.
Loose government regulations allow businesses to subvert the legal system and earn profits through unsavory means. Companies may operate in a manner where they generate high-corporate profits but do not pass these on to employees or investors.
Slow Consumer Spending
Slow consumer spending is often a signal of the economic crisis. Decisions usually measure consumer spending over a period of several months, quarters or years. This information provides economists with the trend of consumer spending under various economic situations. Consumers often slow spending when they are uncertain about the nation’s political or fiscal health. An increase in savings is usually coupled with lower consumer spending. Increases in savings usually indicate consumers are more willing to delay various purchases in favor of saving money.
- &ldquo;Economics: Work and Prosperity&rdquo;; Russell Kirk; 1999
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