Compensate price Essay Example

reserved rather than spent on specific goods and services. Households have no limitations or restrictions when purchasing goods and services currently available. Accumulated savings or credits can be used for these purchases. In the United States, households tend to use significant amounts of credits, although official reports acknowledge that the amount of savings surpasses the number of credits.

It is noteworthy that buying bonds or stocks is actually a form of saving rather than investing, although this is a beneficial trend. The act of investment denotes the procurement of current output, which financial investments such as purchasing stocks and bonds do not necessarily fall under. While it is argued that changes in the interest rate do not have a direct impact on the level of consumption, it is also believed that the household sector is not directly influenced by fluctuations in interest rates.

Modest and slow fluctuations in interest rates can trigger sharp economic responses. The household sector, which is the only saving and consuming sector, depends on interest rates as they use credits for purchasing goods and services. If interest rates increase, households tend to save more while if they decrease, households tend to rely more on credits. Any changes in the interest rate level can directly affect the prosperity of households that use credits for consumption.

According to Ashby, the use of credit by households tends to lead to a decrease in consumption. In terms of economic development, investments play a crucial role by increasing average inventories and replacing outdated equipment. Business saving contributes to higher levels of investment, whereas increased interest rates result in reduced investment. Ashby emphasizes the government's pivotal role in a country's

development and economic policy.

Presently, the government procures capital goods for purposes such as defense, fire and policy protection and education. In comparison, the foreign trade sector in the USA is small. Exports and imports are influenced by exchange rates, and are vulnerable to trade barriers like exchange controls, quotas and tariffs. Furthermore, fluctuations in price levels can have an undesirable impact on both interest rate fluctuations and overall intended expenditures.