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Ar, bond and stock prices frequently fall in response to unexpectedly low unemployment rates Essay Example

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Ar, bond and stock prices frequently fall in response to unexpectedly low unemployment rates

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Of the economy since the economy normally improves before the rates of unemployment can begin to rise again; nonetheless, unemployment creates some kind of ripple effect in the entire economy. When one person loses his or her job, this decreases by one the number of people who are supposed pay additional sales tax revenues since this person will most likely reduce their spending on unnecessary commodities as a result of less disposable income as they are anxious about their financial security.This is a critical issue as numerous nations are experiencing a big debt crisis that needs higher tax revenues in order to prevent a default. In the event that the government of the country is not stable financially, then the entire financial system including the banks will experience a decline in confidence that would imply a downturn in the stock market’s value. Moreover, almost all the unemployed citizens in America eventually qualify for unemployment insurance and ultimately begin taking money from the economy instead of contributing to it in terms of taxes and this increases the deficits and tax revenues of the state.If through every quarter the rates will continue to increase, the state might be forced to increase its taxes so that it can compensate for losses in tax revenue therefore forcing every everyone including the employed and unemployed to face losses in terms of disposable income. This loss in disposable income creates a ripple effect that will entail less money being spent in the economy resulting in people losing their jobs and in the process creating a vicious cycle unless it can be broken through making changes to policies and other dynamics. Additionally, there are issues that are associated with real estate markets where studies have demonstrated that forty-five percent of mortgages are foreclosed as a direct consequence of unemployment, therefore, a rising rate of unemployment results in higher rates of foreclosures, which subsequently results in bankruptcy rates rising and the value of the homes declining.From conventional wisdom, it is evident that the prices of stocks are the leading indicators of economic health while the rate of unemployment remains the lagging indicator. This is sensible as the prices of stock reflect the real-time valuations of the health of a company while the employers do not decide to downsize until when they are sure that they have a sense of prolonged growth or recession. There is evidence that demonstrates

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