I know there must be reasons and this is a dumb question, but I’m a bit of an abstract thinker and have trouble grasping it from a big picture presepctive. Can someone break this down for me? Can’t we all just kind of agree to just kind of… Reset some numbers or something?
Sincerely,
I’ve never taken an economics class in my life
In: Economics
Great question, you should totally take an economics class, you’ll love it!
>You’re not wrong, the Federal Reserve Board (FED) exists for exactly this reason, to “pause” the economy.
>But the economy is made up of lots of people who may not all agree with what the FED thinks those people should be doing (spending) and so the FED has to convince those people to spend more by a series of levers that make spending seem more attractive than saving.
>Once more people are spending more stuff can be made, fueling economic PRODUCTIVITY which is a measure of the TANGIBLE amount of goods and services created.
>You may have also heard the terms SUPPLY and DEMAND thrown around a lot, it’s for good reason, for one, it helps us distinguish between economic problems that are as you say “man-made” and those which are caused by a decrease in economic productivity. The first of these we call a DEMAND-SIDE RECESSION, people are worried and spending less, the drop in demand causes supply to fall to meet demand. The second we call a SUPPLY-SIDE RECESSION, something has fundamentally damaged the ability of the economy to produce goods and services, causing unemployment and reduced spending.
>The FED has tools to gin-up consumer confidence and get people spending money, but there’s no way to manipulate the economy to fix a supply-side recession, other than to address the fundamental issue causing supply to be lower. In our case Coronavirus.
>As an example, the hardest hit regions in China and Italy are both Auto manufacturing hubs. Due to Coronavirus people can’t go to work and the things they would have created are counted against the economies productivity. Worse than that, there’s a whole domino effect as parts become unavailable manufacturing slows down around the globe where other plants are relying on the parts built in those Chinese and Italian plants.
>What you’ve hit on with your question is the distinction between economic measurements that are “man-made” and those which measure the TANGIBLE, how much stuff did we produce. The first of these we call the NOMINAL VALUE and measure it in money, the second we call REAL VALUE its units are barrels of oil, bushels of corn, and meals prepared and served.
Doing my best on two semesters of introductory economics here. Reddit please let me know if anything is incorrect or misleading.
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