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
You’re focusing on the wrong metric.
In a recession, there is less stuff being demanded. Businesses and consumers want to buy less stuff. This means people whose job it is to produce that stuff lose their job and then demand for stuff decreases further. We can measure this loss of productivity in dollars, but it’s not that the dollars are going somewhere else. The stuff is just not getting made.
More generally, there is not a fixed amount of money. Banks create money through lending (which slows down during a recession) and central banks can also, in effect, create new money (which they generally do during recessions).
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