Purchasing Groceries

The simple act of purchasing groceries is in fact not as simple as it may seem. A walk down the aisle of any grocery store reveals that we have products that come from all over the world. The prices we pay come from a variety of factors, from our trade agreements with foreign nations, whether the products we seek can be obtained locally, and the ultimate factor: price. If the government raises taxes on food items, and the income of a household is too low, then families might forego buying anything other than necessities, and shop for the lowest prices.
As food is a primary need, many businesses find themselves merging to compete with such powerhouses as WalMart and Costco. Traditional supermarkets find themselves struggling as these chains take lower profit margins on groceries because food drives people into their locations. An example of this is the merging of Albertson’s and Safeway. They combined so that their purchasing power would allow them to better compete against the larger competitors. Keeping their prices lower allows them to have more business flowing through their stores.
Massive Layoff of Employees
Massive layoffs of employees is a consequence of recessions. As the workforce decreases as does income, demand for goods also decreases. The loss of buying power causes households to stop purchasing luxury items, and focus on necessities. Businesses in turn have less employees for production, and loss of revenue from this action. They may hold back on money spent on research and development, or improving facilities or upgrading equipment because of a decrease in funds to do so. The government winds up paying out unemployment, and is also not immune to layoffs during a recession. Massive layoffs cause a drop in the GDP, and this is the primary measure of the nation’s economy. As businesses begin to feel the effects of the layoffs, the GDP decreases and the economy slows down. Prices have a tendency to go up during a recession, leading to a decrease in buying power, deepening the recession, and prompting the government to step in and take action. This is due to the multiplier effect - the amplification of in intial changes in expenditures. To see how these repercussions will likely work in the real world, imagine that the price level in the United States rises. U.S. citizens will reduce their purchases of U.S. goods and increase their purchases of foreign goods. (That’s the international effect.) U.S. firms will see the demand for their goods and services fall and will decrease their output. Profits will fall and people will be laid off. Both these effects will cause income to fall, and as income falls, people will demand still fewer goods and services. (If you’re unemployed, you cut back your purchases.) Again production and income fall, which again leads to a drop in expenditures. This secondary cutback is an example of a repercussion (Colander, 2013 p.572)
Decrease in taxes
Fiscal policy is often discussed in terms of the government budget deficit (government expenditures less government revenue). If aggregate income is too low (actual income is below potential income), the appropriate fiscal policy is expansionary fiscal policy: increase the deficit by decreasing taxes or increasing government spending (Colander, 2013 p.583) One of the methods that the government uses during these time periods is a decrease in taxes. The decrease in taxes is meant to stimulate spending to combat the recession. Businesses have money freed up to invest in improvements or to use in other ways to increase production. As the multiplier effect works both ways, this helps prices to fall, increasing the demand for goods, and a decrease of demand for international goods. Profits increase and this causes new jobs, which decreases unemployment. A decrease in unemployment means more people have money to spend, and their money goes farther as the prices have dropped.