A:

The <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /?>U.S. economy is one of the largest and most important economies of the world. With the continual growth of its GDP, the U.S. economy continues to overshadow the rest of the world. The main reason for the recent economic downturn is increased government spending. Government spending has been on the rise and is at an all time high, with much of the capital flowing toward war efforts. The upsurge in spending has led to a soaring budget deficit, which creates the impression that the economy will inevitably weaken, if this practice is sustained in the long run. Regardless of the excessive spending, the U.S. economy is still considered strong compared to the rest of the world.

Inflation is another economic factor that has kept investors on edge, as they are worried that this will result in large declines in wealth. Boosting interest rates is a common way to battle rising inflation levels, but increasing the interest rate can also have consequences. Many worry that the slow economic growth and interest rate hikes will result in a massive slowdown in the U.S. economy. The cost of energy, clothing and travel has risen substantially in the last few months triggering consumers to save their money and refrain from investing in anything that may be considered too high of a risk.

The U.S. economy has been expanding over the past several years, but the pressures from the fiscal deficit and currency account balances has caused somewhat of a panic. Despite these uncertainties, it appears that consumers still find the U.S.stock market attractive and see the potential for growth among many of its businesses. The wide spread confidence about the products and companies in the U.S. have therefore helped maintain the potency of the U.S. market.

Overall, the state of the U.S. economy can have an effect on the performance of the U.S. stock markets, but there are still other factors that contribute to it. Based on the actions of many investors, it appears that there is still a strong belief that participating in the U.S. stock market will bring about valuable gains.

For further reading, see The Stock Market: A Look Back, Recession: What Does It Mean To Investors?, Curbing The Effects Of Inflation.

RELATED FAQS
  1. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages a market economy ... Read Answer >>
  2. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  3. What's the difference between monetary policy and fiscal policy?

    Learn how monetary policy refers to bank actions to control interest rates and money supply, while fiscal policy refers to ... Read Answer >>
Related Articles
  1. Investing

    Impact of the Chinese Economy on the U.S. Economy

    The economic growth of China has been decreasing since 2010. What impact does this have on the US and the world economy?
  2. Investing

    Which Countries Will Drive Global Growth in 2016?

    Given the volatility that has already shaken the global economy, the world's largest economies will be leaned on to stimulate growth in 2016
  3. Financial Advisor

    These Will Be the World's Top Economies in 2020

    Discover the current economic forces that are anticipated to significantly shift the landscape of the world's most powerful economies over the next decade.
  4. Insights

    5 Factors That Could Send The United States Economy Into A Double-Dip Recession

    A decline in consumer confidence and stock market correction could be enough to sink the economy again.
  5. Insights

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  6. Financial Advisor

    Citigroup Cuts U.S. Growth Forecast

    After the recently published IMF forecast report, major banks like Citigroup are also cutting growth projections for the U.S. Here's why.
  7. Insights

    The World's Top 10 Economies

    The United States has been the world's largest economy since 1871, but China's growth may soon position it as the leader of the world's top 10 economies.
  8. Financial Advisor

    What's the Fed Going to do in 2016?

    Learn about the factors that contribute to increases in the federal funds rate by the Federal Reserve and key economic indicators for 2016.
  9. Insights

    Is the Current Pace of U.S. Growth Sustainable?

    Although the crystal ball is certainly clouded with conflicting data, strong Q4 data would go a long way in confirming that the current U.S. economic growth rate is sustainable.
  10. Trading

    3 Factors That Drive The U.S. Dollar

    We look at three important factors that affect U.S. dollar value, and how to determine when it's the right time to buy currency.
RELATED TERMS
  1. Fiscal Policy

    Government spending policies that influence macroeconomic conditions. ...
  2. Deficit Spending

    When a government's expenditures exceed its revenues, causing ...
  3. Deficit Spending Unit

    A economic term used to describe how an economy or economic unit ...
  4. Economic Growth Rate

    A measure of economic growth from one period to another in percentage ...
  5. Economy

    Economy is the large set of inter-related economic production ...
  6. Deficit

    The amount by which a resource falls short of a mark, most often ...
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  3. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  4. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  5. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  6. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
Trading Center