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The Neopian Economy - Where it's Been, Where it's Going

by lullabygirl and _MelodyRose_

The Neopian economy is quite unpredictable. A few months ago, it plummeted from 200 to 80 in one day; many investors lost their life savings. At the time of writing, the Neopian economy is at 37 - it's been at an all-time low lately. Are we heading for a recession?

A basic understanding of the stock market and depressions are necessary to understand economics. The stock market is based on supply and demand -- if a lot of people buy a certain stock, that stock will increase in value. However, if many people sell a stock, it will decrease. That is the stock market summed up in two sentences.

A depression usually begins with an abrupt crash of a stock market. This is different from a recession, which is usually gradual. How does a depressions begin? The US's Great Depression in the 1930's is a good example. I'm not familiar with the intricate details of it, but basically what happened is the stock market kept going up and up, so people kept buying stocks. As it continued to skyrocket, greedy consumers borrowed money to buy stocks. Then one day, the market crashed. This was mainly due to overproduction, a decline in international trade, and the fact that the common population was buying stocks on credit. Eventually, something had to snap.

So the market crashed, many people lost all their money - especially the common population who had invested on credit. Those who had borrowed money from a bank to invest in the stock market couldn't pay back their loans, the banks failed due to a lack of money, and any money that anyone had put in the bank was lost. Not only did people lose a great deal of money, but so did their employers, who in turn had to lay off massive amounts of people, causing homelessness around the country.

Many readers are probably thinking, "What does this have to do with me?" It has a LOT to do with you. The fact that the stock market is at 37 - 37! - combined with the current 2.8% inflation rate - up from 1% - makes ominous music come to mind. Have you noticed that a lot of items are increasing in value? I'm not talking about how way back when Faeries were 200 NP and now they're 4000 - think short term. Has anyone else noticed that normal Neggs nearly doubled in value in the past month? Sure, that's great if you happened to be hoarding Neggs, but if the inflation REALLY hits hard, we'll have a shortage on food too.

Luckily, NeoPets is not a capitalist economy. It is more socialist than anything. Notice how, when food prices are high, they raised the limit for the Soup Kitchen, added more easy ways to win Neopoints and items, and added the Omelette in Tyrannia, where you can get free food? Intervention like this helps keep prices steady, which could be either a good or a bad thing, depending on if you support capitalism or communism.

However, stay wary. Prices are increasing and the stock market is plummeting, and NeoPets can't regulate all the prices forever. Take my advice: make sure you've got enough money to live on for a while in your bank account, buy a bunch of items that aren't likely to drop in value [think trading cards -- they're planning to add a game using them, and they're quite affordable nowadays -- as well as the Faeries, codestones, and stuff for the Battledome], and invest in the stock market. Investing now will make the stock market go up, make you money, and possibly prevent a recession or depression. [However, don't plan on selling all your stocks as soon as they hit a decent level, or we'll be in a roundabout forever.] Save, stay aware, and keep prices down!