Awesome explanation you guys make economics fun. Just had a question: are any topics in mathematics that I should take to better understand economics like say calculus or trigonometry?
I believe the main reason governments create inflation is so they can pay off their debts with cheaper money. But what if those that loan to the government got together and agreed to adjusted the interest rate "during the loan" with the inflation rate. Would that keep the government from being tempted to print more money?
Walter Clark no inflation is not good for an economy as in Japan they have had around 0.1 to -0.1 inflation over the past 20 years which makes consumers unlikely to spend as prices will go down reducing velocity of money so inflation must still happen to incentivise spending so this still won't stop governments from increasing inflation and reducing debts is not the primary goal
Why can't lenders and borrowers just agree before hand, that when the money is paid back it will be adjusted for what it's value was when they originally made the deal?
Charles Carter it can be very unpredictable making people not willing to blindly take the deal as it won't increase with wages, it can cause disputes as inflation rates depend on those who calculate them making banks have an incentive to influence those calculating it, in the finale the only people that benefit are the banks
J. Palenzuela variable rate interest does not work in the favour of the consumer as I said in my answer. which is why those making an informed decision typically choose fixed rate
@Josh Settles Yeah, but its not like the bank keeps that newly created money for themselves. If it did, it would create rampant inflation, besides being obviously unfair. Can you imagine, just printing debt money for your greedy self? In reality, when that money is repaid to the bank, it disappears back into the void it came from. Banks only earn the interest on those loans, as a payment from their service, and to mitigate the effect of those who default on their loans.
The federal reserve does just that they print money lend it to the federal government and make billions of dollars profit per year with only 12 locations. They cause inflation of 2% a year when we should have deflation in the economy. Technology has had a ton of deflation over the years in prices and we buy more of it now then we used to.
What if the economy is not so good and there is little demand for capital. As a result banks will have to adjust their interest rate and set it lower. If the real interest rates becomes negative ( inflation > nominal interest rate) will banks still issue loans? because they will lose money if they do
JudeTubeHD no the banks will have no incentive to loan out money at that point it's like a business producing a £50 and selling it at £30 in the long term it's not sustainable
For a lender, if it hadnt lend that money, it would be worse, say it kept its $100, and inflation rate is 10%, it would have made loses. As an institution with overwhelmin unused capital, its better to be lent.
Inflation don't really cause wages to increase, many people have stagnant wages for years. Since the early 1970s, the hourly inflation-adjusted wages received by the typical worker have barely risen, growing only 0.2% per year. Since the late 1970s, large wage gains have accrued to workers at the top of the distribution, and wages have been declining or stagnant for the bottom half of the distribution.
Isaac Darche they provide a service by borrowing money from those who have it and loaning it out to those who need it. That service is of value for both parties, so they earn profit.
Awesome explanation you guys make economics fun. Just had a question: are any topics in mathematics that I should take to better understand economics like say calculus or trigonometry?
Multivariate calculus, linear algebra, and statistics (also probability).
Stochastic process
I believe the main reason governments create inflation is so they can pay off their debts with cheaper money.
But what if those that loan to the government got together and agreed to adjusted the interest rate "during the loan" with the inflation rate.
Would that keep the government from being tempted to print more money?
Walter Clark no inflation is not good for an economy as in Japan they have had around 0.1 to -0.1 inflation over the past 20 years which makes consumers unlikely to spend as prices will go down reducing velocity of money so inflation must still happen to incentivise spending so this still won't stop governments from increasing inflation and reducing debts is not the primary goal
Why can't lenders and borrowers just agree before hand, that when the money is paid back it will be adjusted for what it's value was when they originally made the deal?
Charles Carter it can be very unpredictable making people not willing to blindly take the deal as it won't increase with wages, it can cause disputes as inflation rates depend on those who calculate them making banks have an incentive to influence those calculating it, in the finale the only people that benefit are the banks
It's already a thing, called variable-rate mortgages.
J. Palenzuela variable rate interest does not work in the favour of the consumer as I said in my answer. which is why those making an informed decision typically choose fixed rate
@Josh Settles
Yeah, but its not like the bank keeps that newly created money for themselves. If it did, it would create rampant inflation, besides being obviously unfair. Can you imagine, just printing debt money for your greedy self? In reality, when that money is repaid to the bank, it disappears back into the void it came from. Banks only earn the interest on those loans, as a payment from their service, and to mitigate the effect of those who default on their loans.
The federal reserve does just that they print money lend it to the federal government and make billions of dollars profit per year with only 12 locations. They cause inflation of 2% a year when we should have deflation in the economy. Technology has had a ton of deflation over the years in prices and we buy more of it now then we used to.
Thank you professor,really good videos
The mortgage example, at least in the US context, is not accurate. If rates decline, then the borrower can refi their loan at a lower rate.
What if the economy is not so good and there is little demand for capital. As a result banks will have to adjust their interest rate and set it lower. If the real interest rates becomes negative ( inflation > nominal interest rate) will banks still issue loans? because they will lose money if they do
JudeTubeHD no the banks will have no incentive to loan out money at that point it's like a business producing a £50 and selling it at £30 in the long term it's not sustainable
Thanks :D
JudeTubeHD no problems 😄😄
Discussion question: What are the key messages of the video concerning financial management? Think about interms of interest rate.
what ı understand as Inflation iş the i crease of money supply which on its peak since ever.
For a lender, if it hadnt lend that money, it would be worse, say it kept its $100, and inflation rate is 10%, it would have made loses. As an institution with overwhelmin unused capital, its better to be lent.
Inflation don't really cause wages to increase, many people have stagnant wages for years. Since the early 1970s, the hourly inflation-adjusted wages received by the typical worker have barely risen, growing only 0.2% per year. Since the late 1970s, large wage gains have accrued to workers at the top of the distribution, and wages have been declining or stagnant for the bottom half of the distribution.
Marsiling Martian it did cause nominal wages to increase, the claim made in the video.
Ya boi Neo
Yes, but people’s real wages have been stagnant or declining.
oh
🙇
if a bank get money for free, why should they profit off of it?
Isaac Darche they provide a service by borrowing money from those who have it and loaning it out to those who need it. That service is of value for both parties, so they earn profit.
because nobody works for free
Bridge 🌉 in between should remain protected