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Econ: What is the Real Balance Effect? 0 Views
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Description:
What is the Real Balance Effect? The Real Balance Effect, also called the Pigou Effect after economist Arthur Pigou, posits that deflated prices increases employment, investment, consumption, and more wealth, whereas inflated prices result in decreased purchasing power, leading to decreased consumption and investment.
Transcript
- 00:00
And finance Allah shmoop What is the rial balance effect
- 00:07
Riding a unit cycle on a tightrope walking home from
- 00:10
a raucous New Year's Eve party Examples of one kind
- 00:14
of real balance of that Yeah well another kind relates
- 00:18
to economic decisions Well the real battle Its effect has
Full Transcript
- 00:21
to do with the purchasing power of money It posits
- 00:25
that a change in price levels alters how much stuff
- 00:28
you can buy that is assuming your income remains the
- 00:31
same while you make four grand a month Take out
- 00:34
taxes and rent and utilities and insurance and all the
- 00:36
other basic stuff that eats away at your disposable income
- 00:39
Now you have fifteen hundred dollars left in cash to
- 00:42
you know spend on stuff each month but you still
- 00:45
have to eat You know because of a rare gastro
- 00:48
intestinal disorder you have to eat special snails with every
- 00:51
meal There's a certain enzyme that your body can't produce
- 00:54
That only comes from this particular natural snail meat Yes
- 00:57
eat them or die So snail smoothies for breakfast Snail
- 01:01
sandwiches for lunch Snail ala King for dinner and for
- 01:04
a late night snack Deep fried snail poppers Well the
- 01:08
snails you need are usually eight bucks a pound In
- 01:10
a typical month you spend about four hundred dollars on
- 01:12
them which leaves you eleven hundred dollars out of your
- 01:14
budget for you know stuff money Teo You know go
- 01:17
to the movies or buy video games or purchase gold
- 01:20
grills for your teeth Like Ryan locked Yeah whatever else
- 01:23
you need but this month you get bad news There's
- 01:26
been an outbreak of rare snail Ebola that has ravaged
- 01:30
the population of the special snails You need thio survive
- 01:34
Well the number of snails available has plummeted in response
- 01:36
prices double right Demand is the same and supply is
- 01:40
down so prices go up What used to cost eight
- 01:42
bucks a pound now cost sixteen bucks a pound And
- 01:45
instead of four hundred dollars well this month your snail
- 01:47
fix will cost you eight hundred It cuts into your
- 01:50
other spending You usedto have eleven hundred dollars for everything
- 01:53
else Now you've got just seven hundred You'll have to
- 01:56
cut back on your non snail expenditures Yeah Sorry Real
- 02:00
balance effect at work here people Basically if prices go
- 02:03
up and income remains the same consumption expenditures after decline
- 02:06
You just can't buy as much with the money you
- 02:09
have All right well you'll have to economize this month
- 02:12
on ly streaming movies replay old video games brass grills
- 02:15
for the time being for your teeth there At least
- 02:17
until they ramp up those experimental snail farms You know
- 02:20
where Find a cure for snail Ebola Let's just hope 00:02:23.7 --> [endTime] it stays with the snails eh
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