1
$\begingroup$

I already post this question in Money.SE, but I need to transfer the question in to this site because it's off-topic...

As I said in my previews post.

I start researching the reason why the government can't print more money to resolve its dept and I found this answer "Why can't the government just print more money to resolve its debts?".

Its says the reason why the government can't just print more money to resolve its dept is the inflation... "The more money printed, the lower its value".

Then another question popup in my mind. What if the government not print money anymore? Does the value of money increase?

Improve this question
$\endgroup$
1
  • 1
    $\begingroup$ I suspect you are assuming that it is the government that creates our money... whereas, contrary to popular belief, it is private banks that create the vast majority of the money in an economy - look up "fractional reserve banking". $\endgroup$
    – Mick
    Oct 21, 2016 at 9:56

2 Answers 2

Reset to default
1
$\begingroup$

It causes unemployment to increase. Policy makers usually have to make a choice between inflation and unemployment. More money means inflation and less money means less investment, less job and more unemployment. If money becomes valuable then people will prefer to keep it in bank instead of creating jobs.

Improve this answer
$\endgroup$
2
  • $\begingroup$ So it means the Inflation will rise, the people will not borrow more because its high, they will not spend more because the products price is expensive, the company will terminate their employee because of the low economy? $\endgroup$
    – Leonel Sarmiento
    Oct 21, 2016 at 6:45
  • $\begingroup$ I thought the Inflation will only rise when the government make more money? $\endgroup$
    – Leonel Sarmiento
    Oct 21, 2016 at 6:45
1
$\begingroup$

It's a very interesting question. Governments could actually create more money, but if there is no more real value in the economy, then it will simply mean that you will have to trade more cash for 1 unit of real value. This means that the general price level in the economy will increase. Of course, if you are the person to whom the debt paid off with that additional money is owed, you'll notice that the money you get back is not worth that much any more so you'll be looking for more interest.

Of course, this works in the other direction as well. If there is less money in the economy, you'll have to trade less cash to get the real value you are looking for. And if you notice that a TV-set costs 500 today, and only 480 tomorrow, and 460 the day after, you'll start postponing investments. This will have the effect that there will be less demand for those products, companies will have redundant capacities, which they will try to get rid off, e.g. by laying off people. This leads to a further decline in demand for goods as those people won't have the money to pay for it.

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.