How Printing Money Affects the Economy?
Assuming the government has printed unlimited money and distributed it amongst the citizens, the following will be the changes we will witness:
1. Loss of willingness to work amongst the public
What is the motive for working for you? Money, right
If every person who has been working hard for their bread, will be simply given a lot of money to spend, they will lose their focus leading to a loss of purpose/motive towards work. If no one will be willing to work, who will goods & services in the country and meet the supply of others?
2. Imbalanced law of demand and supply
If no goods are produced due to a lack of willingness of the workforce then supply goes down. But even if the supply or production stays the same level, with excess money in hands of people, their purchasing power increases, further adding to the demand for goods & services. In either case, there will be an imbalance given the prices for everything say raw material, manpower, equipment, etc will rise, landing the economy in “Inflation or in some cases Hyperinflation.”
Suppose a shop has 5 kg of rice each day and five persons come to buy 1 kg each at Rs. 10. Now if the government adds more money into circulation and each person now has Rs. 50 to spend, they can buy the entire quantity at once. Since the supply of 5 kg stays the same, the shopkeeper will end up increasing the price of 1 kg of rice to Rs. 50 to meet the demand of others.
So if the printing of unlimited currency is not matching with unlimited production then inflation can destroy the economy.
Why Can’t a Country Print More Currency – Explained!
During the worst times of an economy, a recession, or situations like pandemics, people generally have doubts as to why can’t a country print unlimited currency, or why can’t a country print money and get rich or get out of debt.
This can help the government uplift the economy by circulating more money, paying off its loans, distributing it among its citizens, and building the infrastructure needed to come out of any crisis. Then why don’t they, what are the rules for printing currency and how does printing money affect the economy?
It’s certain that many of you have such questions making you wonder. Read on as we explain all your doubts in a detailed manner. But let’s understand the fiscal factors of the economy:
1. Inflation
The state of increase in the price of goods and services. If the economy is under inflation or prices are inflated then as a consumer, your purchasing power will be reduced since you would pay more on every purchase than before—impacting your cost of living.
2. Purchasing Power
The capacity of a consumer to purchase goods and services in any quantity. Given many lost their jobs during the pandemic, their purchasing power decreased, decreasing the demand for goods in the market
3. Law of Demand & Supply:
Remember the days of onion prices shooting up in India? Well, those were the times of low supply and high demand, impacting the prices of onions.
4. Deficit Financing
State where government spending is more than its revenue. The spending occurs on account of either borrowing or minting more money to increase liquidity in the economy.
When any crisis tests the robustness of an economy, can a country print its own money?
The answer is yesBut it’s not entirely in the government’s hands to loosen its purse strings completely. From the Indian standpoint, there are certain regulations, repercussions, and rules for printing currency in India.
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