Investment Varies Much More than Consumption - Case Study Example

The people will tend to maintain a stable consumption despite income fluctuations. “Consumption varies less than GDP because consumption depends on disposable income” (Bade, & Michael, 2002). This indicates that consumption cannot be a better measure of economic growth. Moreover, an extreme economic situation such as booms and recession depends on investment trends (Bade, & Michael, 2002). For instance, the 2001 recession resulted from a decline in investment and not consumption.

On the conference Board’s index of leading economic indicators, consumer confidence might affect investment. This is because consumers are fundamental drivers of the economy. Ideally, consumer confidence affects consumers’ decisions, which in turn determines investment trends and capacity. Consumer confidence also indicates a sustainable investment rate. This is because consumer confidence only occurs in a stable economy (McEachern, 2012). For instance, consumers in the banking sector will be confident if the industry has a sustainable investment rate. In such an economy, the entry and exit of businesses from a particular economy are minimal. Consequently, the leading economic index would give or gives minimal information on the country’s investment and, therefore not a sufficient indicator. Read More