Ever heard of someone telling the government to print more money? Or asking why can’t we just print more money? Well today I’m going to tell you why.
It is through inflation
If you look up the definition of inflation, it tells you it is “a general increase in prices and fall in the purchasing power of money”. But what does that mean? I’m going to explain the concept of inflation in simple terms.
Firstly, we need to look at the causes of inflation.
Inflation is caused by banks printing money. Banks print money every year to encourage spending, through loans for things such as cars and homes. But sometimes this can be taken to extreme lengths. For example, 80% of all US dollars in existence were printed in the last 22 months, from $4 trillion in 2020 to $20 trillion in 2021.
As more money is created, the value of each individual dollar slightly decreases.
For example, if you had a piece of gold, it would be worth money. If there are only 50 pieces of gold in the world, then that piece of gold you have is very valuable and worth a lot of money. However, if there was 1 million pieces, your piece would be worth a lot less.
You can also say the same about a money tree, if everyone had a money tree, then everyone would have all the money they could ever want. But if everyone had all the money they would ever want, why would they work? Would a farmer produce crops if they had unlimited money? Of course not, because the person buying it would offer them money they don’t need. Therefore, the farmer would charge a lot more money for the same crop for it to be worth their while.
The same can be said about money, as the government produces more money, there is more money is circulation, and thus each dollar is worth less. Over time mass amounts of printing have big negative impacts on the economy.
And that’s inflation!
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