How can a recession see a drop in profits and a rise in poverty? Where does all the money go, if not to the businesses or people?

Question

How can a recession see a drop in profits and a rise in poverty? Where does all the money go, if not to the businesses or people?

In: 6

Answer 1

I have a car. You have $10000. You want to buy my car, we agree $10000 is a fair price. So I have a car worth $10,000, you have $10000 cash. Together we are worth $20000.

Before the deal goes through, we get some bad news and are in a bad mood. We now think the car is only worth $5000.

So you have $10,000 cash, I have a car worth $5000. Together we have $15000.

Where did the$5000 go?