8.Why can’t a country print money and get rich?

          

When I was in school I use to think the same, even most of them with the same doubt at the back of their minds ‘why can’t a country print money and become rich’…

Printing money

Here is the answer

Most of the people think that gov will print money on the basis of the gold backup’s they have, in fact it is the misconception of the people…

Any county can print the money as much as they want, there is no restriction on it.

In recessionary time’s countries do resorts to printing money, in general we called it as “Quantitative Easing”.

 

The main reason why countries don’t tend to print huge money is “INFLATION” or even hyper inflation in the economy.

I know u have understood my first few lines, but your mind stuck at the last two lines that, what is Inflation mean?? Don’t worry, I’ll explain you in the simple way of understanding.

Lets see what is Inflation is…

Definition keep it aside, do you remember our grandma use to say that “In our days, we use to buy lots of things with few bucks of money”. I think most of them remember it, right?

What’s the reason that the same products which use to buy long back are being pricing high now, the answer is Inflation.

Now let’s know about inflation with simple understanding,

Suppose you have manufactured an i-pad and you want to sell it for 10bucks, and no other people having it. Your friends are very much crazy to buy it. If your friend ‘A’ has 10 bucks with him, ‘B’ has 15 bucks with him and ‘C’ has 20 bucks with him.

As your 3 friends are ready to buy your product, then to whom you’ll sell?
Either need to increase the  production or else increase the price.
 In general, as the demand for your product is high you’ll raise the price to 15 bucks (suppose).

‘A’ will loose the offer, now only B and C have chance to buy,but now 2 people are demanding again you’ll raise the price from 15 to 20.Now only C will buy it.

The main point you need to notice that the product which has to be sold for 10 but it sold for 20 bucks..

It’s nothing but inflation…

In general inflation means ‘A continuous rise in the price of goods and services’.

Now we got a bright idea what is inflation is, but how it relates to the money printing?

If country prints huge cash and make it to flow all over the country, then every one think that they are rich and tend to spend crazy.Suppose those who have a low cost mobile phone  they tend to buy I phone 5. In the same way everyone try to spend more, by which demand for the product increases and finally economy fall into  Inflation,even huge inflation i.e hyper inflation…..

Do you remember when the inflation rate in the country goes to high, then Federal bank or the central bank (in India RBI) tends to increase the Interest rates,by which the money flow in the society decreases , results in  the capability of buying the product decreases which decline in the inflation.If the interest rates are low ,then everyone will tend to borrow the money for low interest rates and starts spending crazy and finally Inflation.This is the main reason for the Recession in 2008 and even other factors influenced at that time. 

 we will be discussing more interesting topics in further posts...

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