Decentralize_everything on Nostr: When signs of an economic weakness emerge, most “experts” are quick to recommend ...
When signs of an economic weakness emerge, most “experts” are quick to recommend fiscal and monetary stimulus. Economic activity is presented in terms of the circular flow of money—spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings.
If, for some reason, individuals decide to reduce their spending, this would weaken the circular flow of money. Once an individual spends less, this worsens the situation of some other individual, who, in turn, also cuts spending. Following this logic, in order to prevent the effects of a recession, the government and the central bank should step in and raise government outlays and inflation, thereby filling the shortfall in the private sector spending. Allegedly, once the circular monetary flow is reestablished, things should go back to normal and sound economic growth is also reestablished.
If, for some reason, individuals decide to reduce their spending, this would weaken the circular flow of money. Once an individual spends less, this worsens the situation of some other individual, who, in turn, also cuts spending. Following this logic, in order to prevent the effects of a recession, the government and the central bank should step in and raise government outlays and inflation, thereby filling the shortfall in the private sector spending. Allegedly, once the circular monetary flow is reestablished, things should go back to normal and sound economic growth is also reestablished.