Chapter 6: Determination of National Income

http://www.cbc.ca/money/story/2009/03/05/gmannual.html

Summary:

Even after bailouts worth of billions of dollars from the government, General Motors Corp (GM) is once again suffering from an economic crisis. According to this article, it is said that GM has a high chance of bankruptcy if they do not reform their plans anytime soon. General Motors Corp’s, on February 17th, planned to restructure their plan by laying off 47,000 workers, 4000 of whom are employed in Canada. Moreover, five factories that GM owns are also closing down. Their “inability to create sufficient cash flow” is the main reason why even after the bailouts, General Motors Corp is still in a financial crisis.

Connection:

The connection between this article and Chapter 6 is the circular flow of money. This is also the reasoning behind GM on the edge of bankruptcy. In the textbook, the circular flow of money describes if anytime there is less consumer purchasing, then it will hurt the business’ profits. However, when households start saving and investing money, businesses will take advantage of this act by laying off workers to maintain a market equilibrium and increase in GDP; households and businesses are interrelated. The jobs being laid down by GM due to the circular flow of money relate to the paradox of thrift. This explains that when GM employees are saving and investing their money, they are actually hurting their wallets as jobs are cut due to their act ions.

Reflection:

Before being informed of the circular flow of money, I believed that if we save and invest our money it benefits us. However, this is not the case; it actually disrupts the economy. When more people are saving, businesses like GM, start to lay off workers, hence they are actually harming their wallet and job. A great way to maintain market equilibrium and an increase in GDP is to encourage more spending in the economy; when more people are spending, more jobs are created as production rates increase. I think the only way for General Motors Corp to climb out of this crisis is to climb up in sales; the bailouts and loans did not help tremendously, therefore, if consumers spend more instead of setting aside their money, it will help GM pull away from the brink of bankruptcy.