What happens if enterprises also actively save? -Part 6

Si Gyeongmin

Nov 18, 2021

For example, in the economy, income is US$100, expenditure is US$90, and savings are US$10. Under normal circumstances, enterprises will borrow $10 from the bank to invest, and the economy will reach equilibrium. But in the case of a balance sheet recession, if the enterprise no longer borrows, there will be a surplus of output, and output will decrease in the next year. If this process of austerity is not interrupted by fiscal expenditures, it will continue. What is more serious is that with the economic downturn, asset prices on corporate balance sheets will continue to fall, which will aggravate corporate balance sheet problems and worsen the balance sheet recession.

Although monetary policy is ineffective in stimulating the real economy, it still seems to be able to make a difference in promoting the prosperity of financial markets. Because the bursting of the asset bubble has an impact on the asset side of the enterprise’s balance sheet, then a direct idea is whether monetary policy can help enterprises repair their balance sheet in terms of asset prices? Loose monetary policy can promote asset prices, but there is a problem that is difficult to grasp. Monetary policy may once again trigger an asset bubble, leading to the reappearance of a balance sheet recession.

Privacy Policy | Terms of Use

Copyright © 2021.All rights Reserved.

Contact us at : [email protected]