Economy Essay Example | Topics and Well Written Essays - 1500 words

Economy - Essay Example The liquidity crunch was the effect of fall in production due to the global financial crisis. Due to the debt crisis, there was shortage of liquidity for which the employment level was affected for which the income level of the people was reduced (Allen, 1999, p.35). Due to fall in the income level and availability of funds, the spending of the people was also lowered. A lower level of spending gave rise to fall in demand in the economy and the sale of products and services also shattered for the companies. The decrease in sale of products and services led to increase in inventory and the revenue earned by the companies and their profitability were lowered. This forced the businesses to reduce their total productive capacities as a result of which the total goods and services in Europe was lowered. Thus the gross domestic product of the European Union was lowered with the European national producing goods and services at a much lesser volume. The reduction in the GDP of the European economy again fuelled the lowering of income levels, subsequent spending and further production in the economy. This could be explained from the circular flow of income as given below. The output produced by the firms determines the productivity level in the economy. This output is determined by the expenditures or the level of spending of the households. The level of spending of the household again depends on the income levels. This income level is determined according to the payments of wages by the firms to their employees who are the household earners. The payment is done for receipt of services required for production of goods. Thus all the above activities in the economy are linked by a circular flow of income. The flow of money in the economy is also contributed by the net government spending. The net government spending is the difference between actual amount spent by the government and the amount earned by the government through levy of taxes. Due to fall in demand of the e conomy, the government spending also reduced in order to maintain a balance with the tax income. The tax income is lowered as there is a fall in the income level of the population. The governments of European Union designed appropriate monetary and fiscal policies to rescue the economy from the staged of recession (Mishkin, 2007, p.25). The interest rates were revised and subsidies were received to boost the income level and production of the economy. Due to the fall in demand in the economy, the net exports also suffered due to reduction in productive capacities which affected the balance of payments and the foreign exchange earnings. This created an impact on the currency conversion rates of Euro. Consequences of drop in demand for Fitnesse Due to the drop in demand in the economy and reduction in spending of the people, the business and profitability of Fitnesse have shown signs of vulnerability. Fitnesse is a centre for recreation and sporting activities that provides excellent infrastructural facilities to its members and also organises tournaments on squash and lifestyle sessions. The centre provides personal fitness training facilities, swimming pool, gymnasiums, body massage and maintenance facilities, restaurants and bars for health and recreation. These