Question

Why is it important to understand CORPORATIONS as a tool to understand the global economy?

Answer 1

Giant corporations in the global economy are worth billions of dollars. These corporations invest in millions of dollars and often their actions can have negative and positive effect on the global economy. For e.g. many banks and insurance companies were associated in the subprime mortgage crisis in the US which had major spillover in the global economy.

These corporations can affect the investment and consumption demand as well. They affect investment demand when they want to invest heavily in the machinery. Likewise when they create jobs in the host country, they also generate consumption demand. The reverse is also true. When these firms shut down, thousands of households may get affected by it directly or indirectly.