Below Full Employment Equilibrium

  

Categories: Econ, Banking

When an economy is operating at a level of GDP that is less than its long-term potential GDP, usually preceding a recession.

Over the long-term, Wakanda's combination of Vibranium, technology, and population can produce a GDP of $1 trillion per year. However, in 2018, many citizens left to spend several months visiting Hollywood studios, and the remaining citizenry was only able to generate $690 billion of GDP. If this below full employment equilibrium persists, Wakanda will suffer an economic recession, so hopefully those Hollywood studios don't have any sequels lined up.

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Finance: What is Inflation and How Does ...46 Views

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Finance allah shmoop shmoop what is inflation and how does

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it work This is inflation and this is inflation and

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this is infiltration but really isn't relevant So get that

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out of here okay The kind of inflation were referring

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to is the kind where money gets more prolific so

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that prices that have stayed steady well feel cheaper All

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right now what the fuck does that mean Well when

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economies are good and everyone is working getting paid able

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to save money and buy themselves luxuries like ah waffle

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maker that injects maple syrup directly into the waffle While

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people tend to be willing to pay more to get

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stuff they'll pay two hundred dollars a person for a

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one day pass to disneyland They'll buy a second car

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a flashy one that gets terrible mileage but will impress

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the neighbors They'll buy this thing whatever it is because

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it is heart Why not there's more money to go

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around Products want to increase in price Ah home in

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eighteen eighty and central california might have cost a thousand

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bucks that same home today Well it's been remodeled a

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couple times but it might cost a quarter million dollars

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Or more but annual wage or salary in eighteen eighty

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Might have been two hundred dollars So that house cost

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five years Wages gruel forward to today in an average

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wage is fifty grand And voila Well that home also

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costs about five years Wages was their inflation Oh yeah

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Big time Was there really cost increase in the house

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will know you had to work the same amount in

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eighteen Eighty is he do today to buy the same

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house All right So why do people want inflation Like

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why did money have to go up so much When

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five yearswork buys the same today as it did one

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hundred fifty years ago Psychology mohr is more which means

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better So people simply like having a bigger number Over

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time it comforts them to think that they're actually gaining

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traction in the financial creek in which they are paddling

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Perhaps more importantly governments want inflation Why Because they borrowed

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tons and tons and tons of money But most of

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the money the governments have borrowed is in fixed terms

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or steady interest rate numbers That is the government agrees

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to sell fifty billion dollars worth of debt at two

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And a half percent interest We exist in a given

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time period at a rate of two point five percent

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inflation calculated as the existing costs of a basket of

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stuff that people buy You know like milk paper towels

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a six pack of bundy's dog treats heartburn medication that

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waffle thing And so on Those and many other prices

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air checked in dozens of stores averaged and totaled And

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a gross number comes out each year In this case

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the total basket of goods assessing inflation last year might

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have been well let's say a hundred grand for simplicity's

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sake This year that same total is one hundred two

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thousand five hundred dollars that's How we got that two

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point five percent annual inflation rate Okay so now there's

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a shock to the system A bomb goes off in

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a mini war start The economy booms his government's by

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all kinds of us products In an effort to you

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know kill one another The bomb making factories pay a

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lot of overtime Toe workers who spend more save more

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and inflation starts to happen all of a sudden that

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carton of milk which used to be three boxes now

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four bucks and everything else moves the same direction So

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we go from a steady hundred year average rate of

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about two and a half percent a year to now

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suddenly a seven percent inflationary environment and that last for

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five years before regressing to the mean of two and

03:23

a half percent So we have five years come Found

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it at a four and a half percent increase in

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inflation It quote made money cheaper unquote As for that

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fifty billion bucks the government borrowed it still has to

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pay the two and a half percent of your interest

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on lee now it's relatively way cheaper to pay back

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that loan You can imagine the case that brazil had

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in desperately trying to pay back its loans many times

03:45

in the asked by inflating its currency i eat making

03:48

the federal borrowing rate from its treasury super cheap like

03:52

one percent or less It made borrowing easy for businesses

03:56

and individuals and in the process drove very high inflation

04:00

rate it's almost twenty percent a year on average for

04:02

a sustained period of time This means that the real

04:04

cost of debt drops by about fifty percent every three

04:08

And a half years or so and that the people

04:10

who loaned the brazilians money were very very p oed

04:14

might seem like inflation then it's just a dandy thing

04:16

to have It makes loans cheaper It lets everyone pay

04:19

off their bills quicker easier better The problem is that

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what happens next time A government wants to borrow money

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and they have a track record of letting inflation spiral

04:29

out of control Lenders just go away How deflating hey

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