In times like this when the global economies seems to be on a downturn the Keynesian economic principles hold ever true.
Since the rapid acceleration of oil price, companies has reduces it production in anticipation of reduced demand. With the increase of oil prices all other prices of goods has increased fourfold.
With the increase price of goods and services and the stagnant household incomes, the public's purchasing power shirks even more drastically.
The lesser the purchasing power, the lest likely households are to consume or purchase. Hence leading to a reduction of goods and services. Thus this in return further reduces the production of goods. In this effect companies are forced to reduce it's operational cost by reducing it's headcount and inventory level.
With all the reduction the entire production is imminent to grid to almost complete stop. The danger of such occurrence may result to stagflation.
In though times like this we are constantly being told to reduce expenditures and to limit our purchases, saving for rainy days ahead. But this in effect would only further reduce the consumption as a whole driving the effect of stagflation even closer to home.
In order to increase out put and demand from companies, we as consumer's should increase our consumption in line with the government's needs to promote growth by facilitating development increasing its expenditure budget and by reducing the interest rates to enable more consumption and demand for goods and services.
X denotes consumption and Y denotes production.
The logic is simple. (Red Line) The lesser we consume the lesser would companies produce in anticipation and forecast a lesser need for production. Hence leading to a lesser need for manpower and thus leading to a lesser employment need. In result the lower the purchasing power generated and lesser consumption by the public as a whole. This would lead to a chain effect which leads to a further decline of the economies.
( Blue Line) indicates that the higher the consumption of goods and services the higher the production level from companies would result to. Which is only fair to say as the more we consume the more the companies has to produce in order to match its demand with supply. This in return would lead to a higher need for manpower and hence more employment or in this case sustaining its current staff. With surplus or a steady inflow of household income the purchasing power would be increased of sustained, provided that the goods and services prices are reduced to stimulate demands.
(Green Line).On the other hand, given the government's encouragements and example by promoting more developments and by developing more infrastructures and increasing the publics spending ability by reducing interest rates and ensuring that prices of goods are reduced with the decline of oil prices. Only with the government's will, that the economy would be able to resuscitate itself from impending doom.
Never the least its crucial organization's or individual's reduces it price of goods and services to encourage demand and further gain from the volume of purchase instead of the value of each purchased.
A point to remember is that if one is greedy for the pie all the rest would suffer with the reduced size of the pie. No one benefits from one greed.
