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If you do a "helicopter drop" the money is created by the central bank out of thin air which is basically why it tends to increase aggregate demand. There's mo
by Symmetry 11y ago
If you do a "helicopter drop" the money is created by the central bank out of thin air which is basically why it tends to increase aggregate demand. There's more money but prices don't adjust instantly so more stuff gets bought.
Raising the minimum wage does the opposite. Hiring workers becomes more expensive and 70% of that increase in prices is empirically passed on to consumers in the form of higher prices. So now the money to price ratio goes down and aggregate demand decreases. Your plan was tried in the Great Depression and it backfired spectacularly.
- Eridrus 11y ago> 70% of that increase in prices is empirically passed on to consumers in the form of higher prices This depends entirely on the price elasticity of demand.
- Symmetry 11y agoYes but I don't think we have any reason to expect major changes in that. And if that were to change then I'd expect us to see minimum wage hikes to start causing unemployment.