Udayavni Special

Why can’t countries print more money to deal with economic crisis?


Team Udayavani, Apr 25, 2020, 5:15 PM IST

Often when we come across news of any country facing economic crisis, we have always wondered as to why the country can’t just print more money and solve the crisis.

Well, Here’s why

It is said that, be it any country, printing of money should always be directly proportional to the total production of goods and services in the country, or else inflation can destroy the economy.

For example, 3 People living in India have an income of Rs 10 per annum and  the total goods and service produced in India is 10 kg of Atta, and the price for 1 kg of Atta is Rs 10. Now, lets assume that the country starts printing more money and the income of the people rises to Rs 30 but the supply of Atta remains the same. The demand for the Atta has gone up and price also has been increased from Rs 10 to Rs 30.

Here, due to excess money printing, the quantity produced hasn’t changed but the price has been changed sharply which leads to a much bigger problem.

Zimbabwe was hit by hyperinflation, in 2008, prices rose as much as 231,000,000% in a single year. It is like a product which cost one Zimbabwe dollar before the inflation would have cost 231m Zimbabwean dollars a year later.

Abundancy of money leads to fall in its value, this means the value of money will depreciate and when that happens, you will spend more to buy the same amount of goods that one would have bought earlier with lesser money.

To get richer, a country has to make and sell more things, whether goods or services which makes it safe to print more money, so that people can buy those things.

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