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Current time:0:00Total duration:3:51

Video transcript

so in a normal economy we know that employment 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'll 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 could think of it as supply it'll Drive supply and it will also Drive 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 and 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 up a little negative sign here and let's say the demand is high and then the supply goes high well that might also make that might also make the demand well 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 that 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 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 are going to drive employment now let's imagine a scenario we are in a bad economy maybe a depression like economy so in that situation you can start really at any point in the circle I'll just start an unemployment 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 depression area environment this would be called a deflationary spiral the flash' nari deflationary spiral and it's a spiral because the 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 that dollar is becoming more powerful that it's I can buy more every minute that I wait so as the price goes down so as all of the 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 that or at least hoard goods the way that they would do in an inflationary spiral but it makes them hoard money it makes them hoard money and why it's ultra scary for central bankers or for government's is they start to not as 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 the depression is going on for years and years and years and let's say that they take some type of a helicopter and this isn't how you actually distribute money into the money supply but it's a 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 woman and child in the country gets a ten dollar bill well if people are really scared and really afraid they're just going to take the $10 bill and stuff it into their mattress and it's not going to change anything that dollar isn't going to actually enter into the money supply the velocity on it will be zero