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lectur3-page46 - in their own “backyards.” This can...

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Let’s look at another popular suggestion, decreased government spending (G), ceteris paribus. We know the government purchases large quantities of commodities and provides income to individuals through entitlement programs. Cuts in spending will probably reduce disposable income in the short run. The California economy took some hits in the short run due to recent cuts in military spending. As government contracts were scaled back and canceled, industries that depended on military spending by the government were forced to find other customers Think of the economic impact on Fayetteville and Cumberland county customers. Think of the economic impact on Fayetteville, and Cumberland county, if Fort Bragg were to be closed down as the military downsized its operations. North Carolina’s eastern economy is influenced a great deal by government spending. Many citizens would like to see government spending curtailed, but not
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Unformatted text preview: in their own “backyards.” This can make it very difficult to cut spending because we all have “backyards” that we expect our elected representatives to defend. As disposable income decreases, we would expect consumption to decrease as well. As consumption becomes less than production in the short run, inventories begin to swell. Managers notice the increase in inventories, and realize they need to make adjustments to bring the system back into equilibrium. If the economy is currently experiencing low unemployment and factories are operating near capacity, managers may choose to decrease production by cutting work hours, or laying employees off. On the other hand, if unemployment was rather high and factories were operating at less than full capacity; then managers may choose to decrease 46 were operating at less than full capacity; then managers may choose to decrease prices....
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