Monday, October 6, 2008

"A cut in interest rates is all that would be necessary ...": Remember that M05 HP3 question 'd'?

Well, check out this one on the importance of consumer confidence in spending decisions. The article is titled "Full of Doubts, U.S. Shoppers Cut Spending" and is published in today's NYT. The link is here and this is a quote from it:

Cowed by the financial crisis, American consumers are pulling back on their spending, all but guaranteeing that the economic situation will get worse before it gets better.

In response to the falling value of their homes and high gasoline prices, Americans have become more frugal all year. But in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply. Even with the government beginning a giant bailout of the financial system, their confidence may have been too shaken for them to resume their free-spending ways any time soon.

Recent figures from companies, and interviews across the country, show that automobile sales are plummeting, airline traffic is dropping, restaurant chains are struggling to fill tables, customers are sparse in stores.

Beyond the obvious macro viewpoint, try to find the most income elastic goods and services in here and think of the importance of the level of income itself in determining the degree of income elasticity of demand!

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