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Have you ever wondered why a country can’t just print money? So here is one of the simplified why.

           

                          

For sure if you are not familiar with economics this is in no way a dumb question, and you wouldn’t in no way like those technical explanations which would leave you with more questions than answers or even those ones which makes you feel like you dumb, which is why we are going to use simplest terms and examples so that you can understand way better about this subject.

Hitting the nail on head, when you ask your friend who is an economist or studying it such kind of question the nearest answer he or she can give you is “inflation”.  But well you wonder what it is inflation right?

It is the general increase in prices for goods and services in an economy not just one commodity but all commodities. For example, an increase in the price of cooking oil, sweet potatoes and beans on the market doesn’t mean that there is inflation. But an increase in prices for all goods and services on the market is considered as inflation.

Now you may be wondering what printing more money has to do with prices?

Printing more money has to do with prices as though more money is printed the production of goods and services has not changed at all. Which means that now there is more money chasing few goods.

What do I mean by that? Let’s assume that you have 5000Frw as money, if the central bank prints more money, there will be a lots of 5000Frw circulating in the country which means that your 5000Frw will be worthless as now everyone will be using their 5000Frw to buy things which will increase the demand for those things and the businesses will increase the prices so that they don’t run in shortage. 

Therefore, when the central bank prints out more money, there is an increase in supply (release) of money in the economy leading to an increase in the demand for goods and services thus, if the supply of goods and services remains steady (constant/unchanged) then the prices will go up and lead to the so called inflation defined above resulting in that your money will be useless.

Do you have a different view, question or an addition to this article? Let us know in the comment section below.

 

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Comments

  1. AnonymousFebruary 1, 2022 at 12:20 AM

    Thank you very much for this simple and understandable explanations

    ReplyDelete
  2. EconomicspaFebruary 2, 2022 at 6:36 AM

    Thank you for your comment

    ReplyDelete

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