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Current time:0:00Total duration:2:55

Video transcript

any economy is a super complicated thing so what I'm going to do in this video is the super oversimplification but it's just a way for thinking about things and in particular I want to think about why good economies tend to be associated with a moderate level of inflation and that'll also help inform us when we start thinking about stagflation when we have inflation with a bad economy so in a good economy employment is up and because employment is up employees have more negotiating power there's more people who want to hire them there's fewer people who want their jobs and so wages will go up and since you have more people with jobs and those that have jobs you're getting paid more you can imagine that demand would also go up there's just more more people have money in their pockets and if demand goes up then companies or if you think of as factories but it could also be services then everything will be utilized more and if things are utilized more then the companies or those factories or whatever you want to think of them they're going to have they're going to have more profit on top of that if they get close to fully utilize full utilization or if they see that full utilization is down the road they're going to want to invest more and they could actually push off that full utilization and still get more profit by maybe raising prices so this is where that moderate level of inflation really shows up a factor if there's more demand a factory can produce a little bit more and it could raise prices a little bit more so this is where the moderate level of inflation shows up and there is a little bit of a negative feedback loop if price goes up it will it will inhibit demand a little bit and that's why it's moderate inflation we're not talking about some type of crazy inflationary spiral here but then that effect of more utilization and more investment is going to be an increase in supply it's going to be an increase in supply and once again and this is kind of econ 101 if supply goes up price that would also have a bit of a inhibitory impact on on price so let me draw a little bit of a just so we get all the feedback loops over here so this is negative feedback right over there but to complete the loop if we're investing more we're going to build more fact or or some more capacity to do services or whatever else that's going to increase employment if we have more profit then a company feels better about growing it feels like it has more of a cushion and it feels more optimistic about the future that's going to help employment and obviously utilization itself if we run the factory lines longer we're going to need more people to run on those lines so though that also will increase employment so this is just the general kind of feedback loop and you can make you know you can add a little nuance twist to this but this is a general idea of why a moderate level inflation is kind of associated with this I would call it a pretty virtuous cycle what we would normally see in a good economy