3 ms·
Just nit picking: > and if less money is available (lost job) that's less velocity. The employer keeps that money, and if it's because of less sales then it's
by mpalczewski 6y ago
Just nit picking:
> and if less money is available (lost job)
that's less velocity. The employer keeps that money, and if it's because of less sales then it's because someone else kept their money. Right now velocity is dropping. The number of dollars stays the same in a lost job scenario.
- starbugs 6y agoTrue, but I am looking at it in a simplified way by only talking about one individual here instead of looking at the whole economy's money supply. Makes reasoning about consumer price inflation easier for me, as an employer would usually not use the money for their own grocery shopping anyway. It's less money available to the individual who has lost their job in this example. That may of course be caused by less velocity. Or it may be caused by a business closing down defaulting on their loans which actually shrinks overall money supply in the economy. The resulting effect on prices is likely going to be the same anyway (in the short run). It remains to be seen whether lower velocity will keep being the only deflationary driver over the long run. If businesses default en masse, then I think we will see real money supply deflation.