Recession Simplified ~ Capitol Hill Baby-Sitting Co-op - Goes through the Business Cycle

Paul Krugman quotes the Sweeneys' anecdote to explain recession.

Economy ~ 100 odd yuppies in Capitol Hill form a Co-op for baby-sitting.

• Couples baby-sit for other couples in exchange of COUPONS
• COUPONS can be redeemed for free baby-sitting hours by another will couple
• Each couple is given a fixed COUPONS on joining the co-op.

Buyers : Redeem the COUPONS for bay-sitting hours

Sellers: Earn COUPONS by selling bay-sitting hours

Central Bank role ~ Board members managing the co-op

Business Cycles comes to play. Over a period of time couples start saving their COUPONS for future use. More couple are willing to earn COUPONS rather then use COUPONS. Not enough are willing to spend or redeem their COUPONS for free evening. SAVE SAVE SAVE!

Liquidity Crisis ~ Not enough COUPONS are in circulation. Members of this economy are focused in earning the COUPONs rather then consuming the goods.

Cash in this economy ~ COUPONS

Goods or Services in this economy ~ Baby Sitting Hours

STIMULUS PACKAGE ~ Central Bank ~ Offers a stimulus packages. Increases circulation of COUPONS in the economy. The economy bounces back.