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. Is Argentina a developed country?

    Argentina is not a developed country. It has one of the strongest economies in South America or Central America and ranks ... Read Full Answer >>
  2. Is Brazil a developed country?

    Brazil is not a developed country. Though it has the largest economy in South America or Central America, Brazil is still ... Read Full Answer >>
  3. Are Social Security payments included in the US GDP calculation?

    Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Transfer Payments For ... Read Full Answer >>
  4. Where are the Social Security administration headquarters?

    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>
  5. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>
  6. Is the Social Security administration a government corporation?

    The U.S. Social Security Administration (SSA) is a government agency, not a government corporation. President Franklin Roosevelt ... Read Full Answer >>
Related Articles
  1. Term

    Understanding Net Exports

    Net exports are the difference between a country’s exports and imports.
  2. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  3. Credit & Loans

    Getting Government Loans For Your Small Business

    Would a government loan provide a more cost-effective way to finance your business? See whether your company qualifies for a government loan.
  4. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  5. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
  6. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  7. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  8. Stock Analysis

    The Best Stocks to Buy for Less than $10 before Year End

    Learn about the best stocks to buy under $10. These stocks are speculative but have considerable upside given their valuation and market conditions.
  9. Economics

    A Look at Greece’s Messy Fiscal Policy

    Investigate the muddy fiscal policy, tax problems, and inability to institute austerity that created the Greek crises in 2010 and 2015.
  10. Economics

    Will North and South Korea Ever Reunite?

    North and South Korea have been divided for over six decades. Some analysts think the two countries could reunify within the next 10 years.
RELATED TERMS
  1. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  2. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  3. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  4. Tenured Capital

    Loans offered by the government to key business sectors.
  5. The New Deal

    A series of domestic programs designed to help the United States ...
  6. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!