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For people on a diet of beans on toast I frankly don't see how...

  1. 5,192 Posts.
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    For people on a  diet of beans on toast I frankly  don't see how the issue would be relevent, but for those  having edible gold for desert,  considering replacing their car or going abroad on holiday or buying a house then the issue would matter and that it is what history and logic tells us.

    Extract from kids stuff about the great depression.

    "The above table indicates that consumer purchases fell somewhat, governments' purchases did not fall at all compared with 1929 but there was a catastrophic collapse of investment purchases. Exports fell but imports fell as well so that there was not much of a change in net exports. It is investment purchases, the purchases of new equipment and buildings and inventory, which is the dramatic case
    Consumer purchases fell also but this may well have been an effect of the Depression rather than a cause of it. People's incomes fell and quite naturally they reduced their purchases. It is therefore reasonable to look into the collapse of investment purchases for an explanation of the Depression. The collapse of investment purchases can be considered the immediate cause of the Depression. The next question is why did investment purchases collapse so dramatically.

    Interest rates affect investment [and goldbugs and they cannot go bellow zero]. They are not the only thing that determines the amount of investment and are not necessarily even the most important determinant of investment but they do affect investment and so interest rates need to be considered. The important thing concerning the effect of interest rates on investment is that it is not the nominal interest rate, the rate the lenders charge, that is important but instead it is this interest rate relative to the rate of inflation, the so-called real interest rate. The real interest rate is roughly the difference between the nominal rate and the rate of inflation. For the precise definiton of the real interest rate see Real Interest.

    The problem in the early 1930's was that the rate of inflation was negative; i.e., there was deflation instead of inflation. This meant that borrowers would have to pay back more valuable dollars than the ones they borrowed.


    YEAR PRICEINDEX RATE OFINFLATION% NOMINALINTERESTRATE% REAL INTERESTRATE%
    1 1929 13.12   5.85  
    2 1930 12.60 -3.96 3.59 7.87
    3 1931 11.34 -10.00 2.64 14.04
    4 1932 10.05 -11.38 2.73 15.92
    5 1933 9.78 -2.96 1.73 4.54


    As the above table shows the nominal interest rate was declining over the course of the economic decline from 1929 to 1933 but because the rate of inflation was negative the real interest rate was much higher than the nominal interest rate. In 1932 the real interest rate was almost 16 percent per year..
    . The long term average real interest rate for the U.S. is about 3 percent.

    The high real interest rates which came as a result of deflation could have been a major factor in the collapse of investment which was the immediate cause of the Depression. Once excess capacity and expectations of decreased sales develop the level of investment drops to zero. After excess capacity develops investment purchases will not rise even if the real interest rate drops. Nonzero investment in such circumstance is maintained only from the emergence of new products, for which there is no existing capacity, and the finishing up of investment projects that are already started... "

    Andy62,

    As I said, change course while you can as economics even at kid's level is not for you.


    Dandoff,

    The lady was actually in the middle thirties and probably with a good income as the cat food was of  very good quality. Pensioners tend also to be budget constrained  as not many would have $150 to spare in cat food, unless cat food it is also what they eat.

    http://message.snopes.com/showthread.php?t=6517

    On the issue of using the example of my trip to the supermarket you certainly as a highly respected  studious should know this:

    https://en.wikipedia.org/wiki/Consumer_choice
 
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