Answer to Question #86995 in Macroeconomics for George

Question

What financial decisions can you make when the economy is expanding and also declining

Answer 1

Household financial solutions include the distribution of income between consumption and savings.

In a downturn, most of the resources go toward consumption. At the same time, in conditions of significant inflation, part of the money can be spent on the purchase of durable goods in order to maximize their usefulness. But consumers will choose products with average quality trying to optimize expenses. Any investment activity will be slowed down and almost stopped.

With an expanding economy, the part of savings increases. Terms of loans and deposits become longer. Consumer will choose products with higher quality.