Economic Crises Case Study

U.S. Economy: Is Recession A Panacea?

Abstract:
Since the end of the Second World War in 1945, consumption propensity in the United States started to increase significantly. Domestic savings remained too low for the country compared to other industrialised and developed nations throughout the 20th century. The gap between the US and other developed nations in terms of personal savings rate has widened since the beginning of the 21st century. The astonishingly high consumption demand had a dual impact over the economy. While it contributed significantly to economic growth, at the same time it led to huge current account deficits. It was argued that high spending sprees and the low personal savings rate were hidden threats and the country might face difficulties in the long run. As past experiences proved that consumer spending reduced during recessions, a section of analysts advocated in favour of recession in order to eradicate the economic imbalance in the US. As another recession was looming large in the US, in 2008, economists were wondering whether the Federal Reserve should allow recession instead of preventing it.

Pedagogical Objectives:

• To highlight the distinctive characteristics of United States consumerism.
• To depict the United States economic scenario along with its high external borrowing.
• To analyse the impact and role of recession on the US economy.

Keywords :  Consumption demand, US consumerism, General Agreement on Tariffs and Trade (GATT), Product line extensions, Purchasing power, Disposable income, Depreciation of the US dollar, Export revenue, Import expenditure, Current account deficit, National saving, Instability in consumers' behaviour, Economic recession, Federal Reserve, Consumer Price Index