Seonglae ChoExpansion
First Step of Short-Term Debt Cycle
spending increase fueled by credit → price rise
increase of income grow faster than the production of goods → prices rise
Inflation
if inflation → central bank raises interest rates → fewer people can borrow money → low spending → low income
prices go down
Deflation → Recession
then central bank lower interest rates
expansion
spending is constrained only by the willingness of lenders and borrowers to provide and receive credit
- credit easily available → economic expansion
- not → economic recession
result
- but notice - the bottom and top of each cycle finish with more growth in the previous cycle and with more dept ← because human nature - inclination to borrow and spend more instead of paying back debt
→ long term dept cycle