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 Does it affect the economy?
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Posted on 12-16-13 12:13 AM     Reply [Subscribe]
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Guys,

I have a hypothetical question. If you have $5 BILLION in cash and you lock that money away in your own basement such that you don't use it at all. I am sure that is significantly going to decrease the amount of cash available for circulation. How does it affect the economy?

P.S. I am not a business major. Just curious to know about such a peculiar situation.
 
Posted on 12-16-13 12:47 AM     [Snapshot: 19]     Reply [Subscribe]
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Okay depends how you get it. Let's say
 
Posted on 12-16-13 12:58 AM     [Snapshot: 22]     Reply [Subscribe]
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Okay there is $1.4 trillion in circulation. To put that in perspective apple has $140 billion in cash pile worldwide and out of which $40 in USA. Microsoft has almost half of what apple has.

So $5 billion is still relatively low. But if you were to take that out all at once from one industry at once. Let's say the fast food industry owes you $5 billion and you take all of it the fast food industry would have a significant impact with cash flows. They might not be able to pay their suppliers emoloyes and bills. So they might have to shut down their operations. There might not be much investments.Employees might lose their jobs and yes it might effect the economy.

But if you have $5 billion in bank and you withdraw and lock down in your basement, it will have no impact at all.

By the way how big is your basement?

 
Posted on 12-16-13 6:54 AM     [Snapshot: 95]     Reply [Subscribe]
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Itroll is right but OP's question sound like the latter case; I.e. in a macroeconomic level how does not infusing an economy with 5B affect the economy.

First of all it depends upon which economy you are talking about. Regardless of how you got it, if you were to spend 5B in Nepal or Bhutan, It will affect the country's GDP. As for US it will have a very minimal effect in a 13T economy.
 
Posted on 12-16-13 7:50 AM     [Snapshot: 111]     Reply [Subscribe]
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Three things, 1. Reserve Requirement 2. Money multiplier 3. Velocity of money. 5 billion becomes significantly larger if Reserve Requirement is low, money multiplier and velocity are high.
Last edited: 16-Dec-13 09:40 AM

 
Posted on 12-16-13 8:29 AM     [Snapshot: 127]     Reply [Subscribe]
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Last edited: 16-Dec-13 09:35 AM

 


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