> Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Inst

> Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Instead they lay some people off, and that can lead to a recession. And the main reason is that reducing wages creates unhappy, unmotivated people. If you own a business you want unhappy unmotivated out. By laying off people you keep people who (supposedly) are happy that they have not been and kept their salary. If you are business owner, it is better to keep 90% of your crew but motivated vs keeping 100% but unmotivated. > That may sound pretty simple. But it is one of the most important discoveries in history. I wonder why is that. If you are a business owner this is common sense. > The second thing to know is that well-functioning central banks can offset such demand shocks to a considerable degree. It is unfortunate that they are called "banks". We need to have better differentiation in naming, as central banks and regular banks don't share same goals. Except they do, and that is next point. > The third thing to know is that if central banks go crazy increasing the money supply, the result will be high price inflation. Because the reality is that increasing money supply is theft/taxation (is there really a difference?) By printing money central bank taxes each unit of currency decreasing its value. While central banks print money directly, the "regular" banks "print" money indirectly. By having ability to lend more than the cash they actual have the "regular" banks are also creating supply of money out of thin air. This can't be called taxation anymore so the only way to call it is theft.