Deflation
Deflationary Spiral Basics of a deflationary spiral
⇐ Use this menu to view and help create subtitles for this video in many different languages.
You'll probably want to hide YouTube's captions if using these subtitles.
- So in a normal economy
- We know that employment will drive overall demand
- if we have high employment or low unemployment
- then people are going to have more jobs
- and they're going to have higher wages
- and that will have higher demand
- or if the other way goes around
- if they lose their jobs
- demand is going to go down
- wages will start to go down
- and people aren't going to have money in their pockets.
- So that employment drives demand,
- and we can view demand
- and I'm making a huge simplification here
- demand will drive production
- or maybe we can think of it as supply
- it will drive supply
- and it can also be a driver of price.
- And of course
- there is a little bit of a negative feedback loop
- for both of these things
- if the demand is high, the price goes high
- that might produce a little bit of negative feedback
- on the demand
- this type of a sort of an arrow, this line here
- means negative feedback
- or I'll put a little negative sign here
- and let's say the demand is high
- then the supply goes high
- well that might also make the demand
- actually the supply going high
- would drive the price going down
- so maybe I should draw a negative feedback like here.
- High supply would mean lower price
- but that's not what I want to focus on in the video.
- And we could keep adding more lines here
- but this is a roughly simple take on it
- but the general idea is supply and price
- will then drive corporate profits,
- or just profits in general
- even for an individual business owner
- and then profits are going to drive employment
- Now, let's imagine a scenario
- we are in a bad economy
- maybe a depression-like economy.
- So that situation you could start really at any point in the circle
- I'll just start at employment
- So let's say employment is really low
- that's going to make demand really low,
- and if demand is really low
- then supply is going to go down
- and price is going to go down
- and then that's going to make profits go down
- and that's going to make employment even lower.
- and so what we find ourselves
- in this kind of recessionary or depressionary environment
- this would be called a deflationary spiral
- and it's a spiral
- because a bad economy is driving lower prices
- which is in turn driving a bad economy
- and to make matters worse
- if this continues long enough
- or if these price declines are severe enough
- you could imagine people saying
- "Look, I have this dollar in my pocket
- I'm not going to spend this dollar
- because one, I might lose my job at any moment
- or, and I know that dollar is becoming more powerful
- I can buy more every minute that I wait."
- So as the price goes down
- so as all of this scary stuff happens
- so the employment is going down
- profits are going down
- price is going down
- this makes people not hoard goods and services the way
- or at least hoard goods the way
- that they would do in an inflationary spiral
- but it makes them hoard money.
- And why it's ultra scary
- for central bankers or for governments
- is they start to not have as much control over the economy.
- They can't just run the printing press
- and try to stimulate the economy in this situation
- because if they did
- people are so conservative right now
- you can imagine maybe
- depression is going on for years and years and years
- and let's say they take some type of a helicopter
- and this isn't how you actually distribute money
- to the money supply
- but it's just to show an extreme example
- so they take a helicopter
- and they start dumping cash on people
- they print cash, and they start dumping it on people
- so every man and woman and child in the country
- gets a $10 bill
- Well, if people are really scared, they're really afraid
- they're just gonna take that $10 bill
- and stuff it under their mattress
- and it's not going to change anything
- the dollar isn't going to actually enter into the money supply
- the velocity on it will be zero.
Be specific, and indicate a time in the video:
At 5:31, how is the moon large enough to block the sun? Isn't the sun way larger?
|
Have something that's not a question about this content? |
This discussion area is not meant for answering homework questions.
Discuss the site
For general discussions about Khan Academy, visit our Reddit discussion page.
Flag inappropriate posts
Here are posts to avoid making. If you do encounter them, flag them for attention from our Guardians.
abuse
- disrespectful or offensive
- an advertisement
not helpful
- low quality
- not about the video topic
- soliciting votes or seeking badges
- a homework question
- a duplicate answer
- repeatedly making the same post
wrong category
- a tip or feedback in Questions
- a question in Tips & Feedback
- an answer that should be its own question
about the site
Share a tip
Suggest a fix
Have something that's not a tip or feedback about this content?
This discussion area is not meant for answering homework questions.