Stardate 20011002.0500 (On Screen): Seth Dillingham asks where the money goes during a recession? Actually, it doesn't go anywhere. What happens is that the rate at which it changes hands slows down. What happens is that any given dollar will on average get spent multiple times per year. Joe gives it to John's Store to buy bread. John's Store pays it to Shirley the cashier. Shirley takes it to Henry's Gas Station and spends it to fill her tank. Henry pays it to his employee Fred. And so it goes.
During normal economic times, the rate at which this happens is quite high. During a recession, it slows. Instead of any given dollar changing hands ten times per year, say, it may change hands only seven times. So the amount of currency doesn't change, but the GDP (which is the sum of the number of times that all the dollars change hands) will decline. GDP is not a measure of the amount of currency in circulation; it's a measure of how much spending is happening. (discuss)
