Fundamentals of Macroeconomics
According to Colander (2013) gross domestic product, or GDP, “is the total market value of all final goods and services produced in an economy in a one-year period” (p.545). A major component of our GDP is groceries. Grocery purchases can have a tremendous effect on the economy and thus our GDP. The purchaser exchanges currency for their chosen items. The government gets a portion of the proceeds in taxes. The government then uses this tax revenue to fund the government. A large portion of the tax revenue funds entitlement programs such as welfare. Additionally tax revenue pays the salaries of government employees. Recipients of funds from entitlement programs as well as wage earning government employees in turn use those dollars on various expenditures that may include buying groceries. ...view middle of the document...
When people start to hold on to their money instead of spending it, money is pulled out of the economy. Businesses such as grocery stores see less income and may cut back on employee’s hours or even lay off employees. Less tax revenue is generated and government spending may tighten. Government programs may be cut and additional employees will see layoffs. Individual spending tightens more, prices fall and the ripple effect on retailers continues to grow.
There are many steps the government can take to stem the tide of the slowdown and increase costs thus putting money back into the economy and increasing spending. The United States government may subsidize crop production, such as corn, which is used not only as a food source but also as a bio-fuel. Subsidizing corn takes corn out of the food supply and causes in increase in corn prices. Another aspect revolving around corn production is that the World Trade Organization (WTO) may place limits on the amount of corn that the United States can subsidize and store in stockpiles causing a reduction in the food supply increasing volatility in corn prices (Amadeo 2012). A third aspect is worldwide consumption of meat. Food stuffs such as corn are not only used for bio-fuels, it is consumed by humans as food as well as being consumed by the animals we will in turn eat. We will subsequently see a decrease in the supply of corn and an increase in prices. The price of corn is also affected by fuel costs. Corn and meat are shipped worldwide and it takes lots of fuel to move it. As the cost of transportation increases so does the cost of our food.
Colander, D. (2013). Economics (9th ed.). New York, New York: McGraw-Hill Irwin.
Kimberly Amadeo. (2012). Why Are Food Prices Rising. Retrieved July 9, 2012. http://useconomy.about.com/od/inflationfaq/f/Why-Are-Food-Prices-So-High.htm