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
Credit. When the economy is good then money flows often time based on available credit line. The credit line/limit is a self-propagating function.
You’ll get a higher credit line if your assets (business cash flow, home equity, stocks) increase in value. In a growing economy, the credit lines will go up which will essentially “create money”.
However when times are bad, then spending slows down and then those assets decrease in value which will cause banks to decrease credit limits (to fend off risk) and now a bunch of that created-money from before disappears.
The economy is basically a big self-amplifying loop of gains or losses of money.
Less dirt is being turned into iPhones, so companies have less to sell, so they make less money, so they have less to pay their employees, who have less money to buy iPhones.
The value of companies on the stock market is tied to how much people think they will make in the future. During a recession people are less optimistic about the future, so the stock value of many companies go down, so people who’s savings were partly made up of stocks temporarily lose big parts of their savings. If they can wait until the recession is over and the stock prices recover then no money is really lost. If you happen to need to retire during a recession and cant delay it a few years then you could lose a lot of value.
Think of GDP as total economic activity in a timeframe not total dollars in circulation at a given point in time. The same dollar can be used for many transactions, all of which add to GDP.
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