It vice versa where’s it coming from when the economy is booming?
When the economy is bad, it feels like there’s not enough money to go around, but when it’s good there’s plenty.
In: Economics
So money is just an allocation system for goods and services. Every time money is transacted, goods or services are being acquired by someone. If you and I had a $100 bill and we took turns exchanging that bill for something, we would be increasing the economic output of our little ecosystem. For example, if you gave me the $100 so I could do some landscaping for you and then I give you back $100 so I could buy a kitchen appliance from you and then you gave me back the $100 so you could buy my old comic books, etc…
If we did this 20 times, our little economy has the GDP of $2000. There was still only ever one $100 bill, but we exchanged it 20 times and each performed a service or exchanged property. in the end, money is meaningless if it’s not usable and using it is what generates an economy. Between each other, we fixed our landscaping and got more desirable items for our homes. We’re both better off because we exchanged that money back and forth.
Now if we exchange it less, we’re in a recession now. There’s still the same amount of money, just the one bill, but we aren’t exchanging it as often, there are fewer goods and services in our economy. In essence, we are now poorer because our lifestyle has gone down despite having the same amount of money.
Basically a way to think of it is that in a booming economy, more money is changing hands more rapidly and, in a recession, it’s not happening as much. The real measure of the wealth of a population is how many goods or services they acquire/create.
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