This paper discusses that the stock market and the economy are deeply intertwined, so that when something happens in one, it affects the other.
This paper relates that stock market declines have a wide-ranging effect on many sectors of the economy; therefore, the health of the stock market is seen as an indicator of the general economic health. The author points out that drops in the stock market often translate into decreased net worth for both households and businesses, thereby, decreasing consumer spending and confidence, which damages the economy. The paper concludes that one of a number of solutions proposed to help stimulate the US economy includes tax rate cuts.
“Certainly, the stock market is only one of the factors that can impact the economy. Savage notes that almost all Americans are familiar with the textbook example that WWII played an important part in stimulating America’s economy. Importantly, given America’s recent actions in Iraq, war can have a significant economic impact as well. Economist Robert Genetski notes that there are several important caveats on war’s impact on the economy. He notes that markets often soar in anticipation of a quick victory, but that if the battle were to be prolonged … any market rally would be quashed. This prediction bodes poorly for the economy given recent news of continuing American deaths in the ongoing crisis in Iraq.”