What Happens If More Money Is Printed

Printing Money – Can a Country impress Money and become Rich?

When I was kid I used to wonder what stops government from printing coin? Can’t a state just print money and distribute that money to its citizens?

We used to hear that Mr Ten is earning more than Mr Y. And then Mr. X is richer than Mr.Y. Rich and poor is decided on the basis of money one possesses. And so it would be wonderful if government decides to distribute money to anybody so that everyone lives a comfy life!!

In fact, in recessionary times – countries practise resort to press money, or what is known as Quantitative Easing (QE), – a term that became pop but after the recession in 2008. But, that measure is only for farthermost situations, and is also considered unsafe considering printing money causes inflation in an economy, and if you lot impress besides much money you can become hyper – inflation besides.

Instance
: Most 2-3 years back 3 eggs could have price yous 100 billion dollar “Republic of zimbabwe” bank note. So basically nosotros are talking about full devaluation of currency. Off course this is extreme just it shows the capability of inflation beast.

What determines the corporeality of money a country can print?

There is no stock-still yard stick which determines the corporeality of printed coin past central bank. It should exist sufficient to make transfer of goods and services smooth and at the aforementioned time restore the value of currency.

Value of currency depends on many factors due east.g. net exports, Current and fiscal deficit, Interest charge per unit in the economy among many moving parameters.

Generally speaking central bank prints almost 2-3% money of total GDP. But this corporeality of coin varies a lot from economic system to economic system. Mature or developed market prints 2-iii% of their Gross domestic product. Emerging economy like India has much more than 2-three% money in circulation.

Black money plays a big function in in currency circulation and hence amount of money available in the legal aqueduct.

How much money is enough?

Now the question is how much currency should government impress in order to circulate and so that they can transact things? So we take on i manus goods and services produced in the economy and on the other hand currency to brand move or transact these produced things better and swifter. So now imagine, India as a land produce only one kg of rice in a year.

Govt has the selection of press every bit much coin as they want. They tin can print 100 Rs in form of 100 notes of 1 Rs or 200 Rs in class of 200 notes of one Rs this manner. The divergence betwixt these two situations is cypher but nosotros have either 100 Rs or 200 Rs to buy this same quantity i.e. 1 kg of rice.

This is very simplistic scenario but it is very relevant to lay the foundation for understanding the role of currency.

Printing coin – Why does the government print money?

And so the natural question at present is why government prints more money when it is not creating any value for the economy. They take the entire literate and qualified person advising them to keep press money i.east. later on US recession of 2008

Incremental Money Supply

At present we will take different scenario i.e. we take just 100 notes of 1 Rs and we have 200 people in our state. And then in order to enable everybody to transact nosotros need at to the lowest degree 200 notes. So this is one of many reasons why country needs to impress incremental money.

In developing economies similar India, Indonesia or red china every twelvemonth millions of their citizens are coming out of poverty. Government has to provide currency to these residents then that their demands (currency) tin can be met. Incremental money supply should be proportional to real output in the economy otherwise it will create excess supply of currency.

Excess supply of money feeds into inflation and hence reduces buying ability. And so printing coin helps if it is washed proportionately with existent output.

At present imagine a relatively sophisticated economic system, where demand of currency and supply of the aforementioned is proportional to the goods and services produced by the economic system. In these circumstances prices of appurtenances and services would be in equilibrium at any signal of fourth dimension.

Illustration

Now imagine our government becomes generous and transfers one crore to every citizen’s bank account. In order to meet this they start printing money and distribute it to anybody.

Now everyone becomes richer by one crore. In this situation people will start buying cars, air conditioners, refrigerator and all the things which they were not able to afford before. Now the need is increased for nearly all the goods and services because purchasing power has been increased.

On the other paw since no technological development has happened or real output has not been increased, amass supply of appurtenances and services will remain the aforementioned. This new inverse environment has destructed the equilibrium of need supply dynamic equilibrium.

And then the prices of goods and services in economy would adapt to the level where growth in the money supplied or need volition completely reflect in the price increase. And then the situation comes to the dorsum to square ane i.eastward. no ane becomes richer since they did not have any incremental buying power.

Printing Money – Conclusion

In the process of becoming rich, a country needs to be technologically advanced and more competitive. The increase in national income will be purely monetary (nominal). The reason is that printing money or more coin doesn’t improve economic output in any way. Information technology merely causes aggrandizement.

In the process of becoming rich, a country needs to be technologically advanced and more competitive. A country gain on the path of economic growth by fetching money through college need of locally produced goods and services.

Source: https://www.wisdomtimes.com/blog/printing-money-can-a-country-print-money-and-get-rich/

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