- Student’s Name
When the Gov Prints Money
The circulation of money in the economy significantly affects inflation mainly because of the difference in demand and supply of products. The prices of corn in the economy of the island of Tap will double and lead to inflation mainly because of the increase in demand for corn while the supply remains constant. When governments print and inject more money into the economy, the purchasing power of the people increase that leads to a significant increase in demand for products (Sexton 57). However, a constant supply of the products results in a considerable increase in prices due to more buyers of the same goods. The economy will witness a spike in inflation stemming from the doubled price of corn because people will be able to purchase two bags of corn instead of the previous purchasing power of one bag. Governments regulate and control the printing and circulation of money for controlling inflation because an increase in the circulation of currency results in a higher purchasing power of the public that creates higher demand. This perspective should be controlled by the government to manage the overall supply of money in their respective regions (Rothbard).
Inflation can be a problem for the economy because it can lead towards scenarios like fall in value of savings, menu costs, and confusion in the economy. The printing and supplying too much currency notes would be a problem for the economy because in this scenario the prices would go up significantly that cause problems in the economy. This is also applicable that people might stop using their own currency in such scenarios.
- Rothbard, M. What Has Government Done to Our Money? London: Ludwig von Mises Institute, 2015.
- Sexton, Robert. L. Exploring Economics. Boston, MA: Cengage Learning, 2015.