| SciFiBoy said: i think i understand, using your model, what would you say is the primary cause of the economic downturn and how would you advocate solving the problem? |
Well, I was going to expand on the article tomorrow adding more information which would help with this (I'm knackered, atm), but to give you a quick summary:
Essentially, all the things in the economy need to be in balance. For the economy to work you need to keep a cycle going.
Income -> Demand -> Output -> Employment (and back around to income).
The cycle failed this time around because income went out of sync with all of the rest (credit died, essentially, which lowered income).
When income lowers, that lowers demand, which lowers output, which lowers employment, which has the continued effect effect of lowering income further.
It's a downward spiral.
For this cycle to turn around, one of the four things much be "swung" around (which, as you can imagine, is a very hard thing to do - as you have the spiralling effect of the other three elements trying to keep it in the same direction).
The Government, thus far, has been tried several things including: (UK)
-Bailing out banks - to increase accessibility of credit, which improves income, and to try to prevent mass layoffs.
-Bailing out automobile industry - this is mainly to try and help prevent mass unemployment
-Dropping VAT - the idea behind this is essentially increase people's real income, so that they can purchase more with their money.
The Bank of England has also dropped interest rates which helps lowers things like mortgages, again helping income.
