I know that in economic models it’s easy to explain, but in real life how does it work? How do buying bonds and lowering interest rates actually cause more people to have jobs? What is the chain reaction?
In: Economics
It is not really about bonds and interest rates as much as it is about the increased circulation of money.
See, one of the things that happens when economies dip is that people stop spending as much money. They pinch pennies. This reduction of the money supply can have a negative feedback loop where the economy dips so people pinch pennies, which causes the economy to dip some more which cause more people to pinch, etc etc etc.
By lowering interest rates and such, what you’ve done is essentially have a clearance sale, except the clearance sale is the whole country. And poor or not, people love a clearance sale! **And this is the key to the whole process**: keeping people spending money means that sources of production (stores, services, etc) keep doing steady business. And if they are doing business, they need workers. And if workers are employed, then they are making money, *and then they go forth and spend that money*, and the whole circle of life keeps spinning.
For a counter example, let’s look at austerity measures and why it is so god damn fucking stupid to implement in a recessive n (fine during a boom). Seriously, it’s fucking HORRIBLE in an economic recession. Why? For the opposite reason stimulus is good: it promotes money being taken out of circulation.
Austerity contracts the money supply, and makes it more difficult for people to spend spend spend. And if no one buys, then no one produces. And if no one produces, there is no need to keep him or her employed. No jobs means even LESS spending, and the circle of life grinds to a halt.
So to make it easy to remember, stimulus in a bad economy to speed it up, and austerity in a good economy to slow it down and keep a steady momentum.
Hope that helps. Especially the next time you hear a politician speak.doea he or she say we have to cut spending when there is a recession? *Then do not vote for that fucking dipshit*. Likewise, do they enact stimulus when the economy is firing on all cylinders? Like how that fucking cocksucker Donald Trump slashed taxes in the middle of a boom when he should have been RAISING taxes to recoup revenue lost during the last recession that was also caused by Conservatives? Then don’t vote for that asshole either.
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