Arguably, every economy in the world produces services and goods. The goods and services can either be investment or consumption. Actually, U.S should allocate more of its national output on investment goods. Investment goods include machinery, factories, vehicles, as well as buildings. This is one of the important components that will affect U.S demand side of the economy. Spending more of its national output on investment goods, puts U.S into a position of producing more consumer goods in the near future. If U.S invests in consumer goods it will increase the total countries consumer spending that is mostly borrowed, thus causing a deficit in the economy.
As a matter of fact, economist’s belief that devoting national output to investment goods is much better than producing more of consumption goods. Investment is very important in promoting long-term economic growth of a nation. It does this by improving countries productivity level and capacity.
Additionally, investment helps to exploit the existing economies of scale. Devoting national output to investment goods, together with the advancement of technology, improves countries economic competitiveness as well as shifting outwardly countries PPF (production possibility frontier). Extra investment will in turn lead to an increase in the production of consumer goods. Therefore it is important to invest in capital goods.
In short-run devoting resources to investment goods, requires a tremendous reduction in the current consumption goods. A rise in investment goods affects both the supply and the demand side of the economy as well as positive effect on national income, brought about by the multiplier effect.
In the recent past, United States of America witnessed the highest levels of income inequality. It is a unique scenario as compared to other developed nations. Actually, it is well understood when the degree of inequality is much higher in third world countries. This is because it is caused by demographic factors, labor force, education level, and poor policies. In the case of U.S all these factors have been checked out, or if this is the case then most of the developed countries would be experiencing the same, but that’s not the case.
In U.S, income is mostly concentrated at the top. Statistics shows that, in times of income increase, income of those few individuals at the top increases at a much higher percentage than those at the bottom. Furthermore American politics, ideologies and presidency has formed the course of inequality of income. This forces leads to a wide cap in the household income among U.S citizens. Certainly, U.S receives a big number of immigrants, in which most of them come from poor nations. Most of these immigrants have low level of education, hence increasing the population of those struggling for low-paid jobs. Other factors for the uniqueness of income distribution in U.S include trade, technology, family structure and expanded markets.