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In the 2017 movie Downsizing, a chunk of the population decides to reduce their body size to just a few inches. What would be the consequences of this on the economy? I'd like to know chronologically what the important steps would be until the economy goes back to some stability.

In my scenario, the proportion of small vs big people in the country stays stable, let's say 50% of the population decide to Downsize, 50% stay normal-sized. I am considering an essentially free economy (let's say the current day US like in the movie) where trade between small and big people is initially not restricted, but could be in the form of laws or taxes later on.

(I do not have any background in economics, please make it as lay audience as possible!)

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    $\begingroup$ I'm voting to close this question as off-topic because it is about an impossible hypothetical that necessarily invites opinion based speculation. (It is also very broad.) $\endgroup$ – Giskard Jan 7 at 15:00
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    $\begingroup$ @Giskard What is bad about impossible hypotheticals? The Ricardian model, for an example, is an impossible hypothetical (you can't really run economy with exactly two goods) $\endgroup$ – user161005 Jan 7 at 15:30
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    $\begingroup$ @Giskard it's a perfectly cromulent question. Demand shock with inequality considerations. It's a bit contrived, but so what? $\endgroup$ – heh Jan 7 at 15:34
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    $\begingroup$ @user161005 That model relies on both the composite commodity theorem and peicewise budgeting. Its not that crazy when you have these two ideas in mind. $\endgroup$ – EconJohn♦ Jan 7 at 16:28
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    $\begingroup$ I feel like it's an interesting question, but you'd need to narrow it down a bit. As it stands, the question is too broad. Put in more assumptions, for example. $\endgroup$ – Art Jan 8 at 6:12
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It would decrease consumption, lowering demand on many markets, meaning that prices would go down. If downsizing would rampant enough it's possible that economy would experience deflation, maybe even recession. As the result, maybe central banks would be decreasing key interest rates (i.e. make new debts cheaper), start buying bonds and lowering reserve requirements for banks in order to stimulate economy. While governments could increase government spendings, decrease tax burden and relax business regulations for the same reasons. Accumulation speed of government debts would be increasing (i.e. government would be borrowing more in order to finance their deficits caused by increased government spendings and decreased taxes). It would also make workforce more rigid, unemployed downsized people wouldn't be able to take some jobs. Like you can't take job of a burger-flipper at MacDonalds if you're downsized. Nations with downsized workforce would be able to offer lower prices while exporting their services abroad. Downsizing would be most widespread among countries with big service sector, like many deindustrialized and post-industrial countries. Imports of countries with downsized workforce would decrease, possibly leading to positive trade balance.

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    $\begingroup$ Nice to see a good-faith effort to answer the question. One other thing to consider: smaller people would have less expensive basic needs, while still holding the same endowments they held before the size-change. Meaning that relative to personal consumption, their personal wealth would improve. $\endgroup$ – heh Jan 7 at 15:36
  • $\begingroup$ Wow thank you! What about business relationship between normal-sized and downsized people within the nation? What consequences would that have on the whole economy? As @heh highlights, I would imagine downsized people suddenly have an enormous buying power, as they can buy so much (at their scale) of a specific good with a given amount of the currency. Would producers raise prices knowing that downsized people can afford it? How would that affect normal-sized people? Should governement create two separate currencies to stabilise the economy? $\endgroup$ – francoiskroll Jan 7 at 16:21

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