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

Recessions, like many measures of the economy, are a measure of ACTIVITY. It isn’t a measure of how much money there is. Money doesn’t go anywhere. It is how many transactions occur in the economy that determine it’s size and growth. Holding money in your wallet does NOT make the economy grow – earning and spending money makes the economy grow.

In a recession, there is less overall activity. Typically firms hire fewer people (less wages) etc and people spend less (less profits).