Posted tagged ‘Aggregate demand’

What Comes First, Production Or Consumption.

November 20, 2012
Kindof a visual pun that I've illustrated...

Kindof a visual pun. Which came first?  (Photo credit: Wikipedia)

What drives the economy, supply of or demand for goods and services. Does the economy grow because we consume more or can we consume more because the economy grows. This article by Mark Skousen title, “Consumer Spending Doesn’t Drive The Economy, Investment Does”,   explains the public’s perceived chicken or egg conundrum about production or consumption. This is not a puzzling question at all, the answer is very logical and easy to understand. Consumption happens at the end of the production process. You can’t consume something that does not yet exist, and the only way a consumer’s good can exist is if someone produces it. Production is the act of creating wealth, while consumption is (more…)