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 effect of a fiscal deficit on the economy?

    Take a deeper look into the real impacts of government budget deficits on the economy, and why government financing reduces ... Read Answer >>
  3. What is GDP and Why Is It So Important To Investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. Read Answer >>
  4. How do changes in interest rates affect the spending habits in the economy?

    Examine the factors that typically determine how consumers react to interest rate changes in terms of increasing their levels ... Read Answer >>
  5. To what extent can a government intervene in a market economy?

    Find out at what point a market economy receives so much government intervention that it can no longer be considered a market ... Read Answer >>
  6. What macroeconomic problems do policy makers most commonly face?

    Learn about the macroeconomic factors policymakers have to be concerned with when deciding on economic policies, such as ... 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. 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.
  3. 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.
  4. Insights

    Trump Budget and CBO Budget Differ Widely

    The size of the difference between the administration’s assumption about economic growth and that of the CBO is unprecedented.
  5. Insights

    Can The U.S Close Its Trade Deficit?

    The stronger dollar could have increased the U.S. trade deficit. Instead, economic growth issues abroad and falling oil prices have helped shrink it.
  6. Insights

    The Hidden Truth Behind The U.S. Economic Recovery

    Learn how the economy is being artificially propped up by unsustainable monetary and fiscal policies.
  7. Insights

    How US Interest Rates Move the World Economy

    Because the US has the world's largest economy, fluctuations in America's interest rates affect much more than domestic growth
  8. Insights

    Four Factors Supporting the Global Economy in 2016

    The global economy enters 2016 on a promising note, with the growth pace forecast to be the fastest since 2011, thanks to a combination of four potent factors.
  9. Trading

    The U.S. Dollar: What Every Forex Trader Needs To Know

    The U.S. dollar is by far the most significant currency in the global market. Find out what you need to know if you want to trade it.
  10. Investing

    Is The U.S. Still The Center Of The Economic World?

    A weakening currency and huge debts question the U.S.'s position as the world's dominant economic powerhouse.
RELATED TERMS
  1. New Economy

    New economy is a buzzword describing new, high-growth industries ...
  2. Economy

    Economy is the large set of inter-related economic production ...
  3. Economic Growth Rate

    A measure of economic growth from one period to another in percentage ...
  4. Economic Conditions

    The state of the economy in a country or region. Economic conditions ...
  5. Economics

    A social science that studies how individuals, governments, firms ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. ...
Hot Definitions
  1. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  2. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  3. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  6. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
Trading Center