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Governments print more money in times of crisis particularly when they cannot borrow anymore money by issuing Government Bonds, such as Gilts in the UK. There is a formula used by economists to best show what happens when a government prints money. MV = PT where M is the amount of money in circulation V is the velocity of circulation of the money in the economy P is Price T is the number of transactions taking place. Given that V and T remain constant it can be seen that by printing money say by twofold this will lead to a doubling of prices. There will be too much money chasing too few goods and retailers etc. will increase prices as the printed money hits the economy. Also more foreign goods will be purchased leading to an erosion of the currency of the country that has printed the money. Zimbabwe is a classic example! Soon the British Government will hit a crisis point when tax revenues will fall well short of expenditure. They will continue to sell Gilts to borrow against this shortfall, but the more gilts that are issued the greater the risk the UK will default on their debts. This is currently running at an 80:1 chance of default in the next 5 years. The Government will then have to bid up the rate that it pays to the buyers of Gilts in order to entice them to purchase the Gilts. This will lead to an increase in interest paid further adding to the debt burden. This government will then inflate our way out of the problem by printing money. We will be then back to the seventies in a scenario of rampant inflation and a huge run on sterling.
Wiki User
∙ 15y ago
Wiki User
∙ 15y agoImagine an island community whose economy uses seashells as the form of currency. One shell is about equivalent to one dollar. They goods and services for these shells. Because there is a finite number of shells, their value remains high and the economy remains strong. I could purchase a fish in exchange for a shell. Then say, due to global warming, there is twice as many shells. Now you would think that this is a good thing. It would be if the population grew and there were more valuable services created. However, in the absence of such modifiers, now my shell is worth half as much. So the same fish now costs two shells, instead of one. This happened in Germany after the first world war. They owed so much to other countries, that they had no money left. So what did they do? They printed more money. Now a loaf of bread costs $500,000 dollars. It is happening now in Zimbabwe. More and more currency is printed, but that makes no one richer, it just devalues each previous printed note. A better example might be, what if there was only one dollar in all of the US? The man/woman who held that dollar would be the richest individual in the nation. And a penny could buy you a home.
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∙ 9y agoThe effect of printing money in an economy is often referred to as inflation. The economy is falsely inflated by printing more money which in turn raises prices.
Wiki User
∙ 14y agoyou get arsted
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∙ 11y agoeffect of an over supply of money
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Why do prices rise when the government prints to much money?
Well when your government prints more money, they still have the same amount of gold, so the gold is worth less of your country's money. The same applies to food and other items. As money is worth less, it buys less things
What happens when the government increases the money supply?
There several things that happen when the government increases the money supply. This may cause inflation as there will be more money in the market than goods.
What causes structural inflation in developing countries?
increase in prices goods and services when government prints more money
Why cant the government print out more money?
The previous answer, while thorough, was a complete and utter lie and made no sense at all. If the government prints more money, then prices will go up, and so no problems would be solved. Think of it this way. If you and a storekeeper are the only two people in a country, and you each have $10, you might pay your $10 for some food. If the government printed more money and then you both had $20, now the storekeeper would want $20 for that same food. It's the same thing in real life, but with more people.
What happens when a government runs a budget deficit?
The government prominently collects money in form of taxes and it spends money in many ways such as defense, government jobs, aid programs such as EBT, and etc. Therefore when the government runs a budget deficit they are spending more than they collect, more than likely effecting the national savings.
Why do prices rise when the government prints to much money?
Well when your government prints more money, they still have the same amount of gold, so the gold is worth less of your country's money. The same applies to food and other items. As money is worth less, it buys less things
What basis US government prints more dollars?
The government is always printing money, but it is up to the Federal Reserve to release it. The Federal Reserve decides when and how much. This last week they released more money into the economy by purchasing new bonds from the U.S. government. This will likely promote inflation.
What happens when the government increases the money supply?
There several things that happen when the government increases the money supply. This may cause inflation as there will be more money in the market than goods.
What happens when the government borrows a lot of money?
whenever more money is printed.. the dollar value becomes less.. simple as that.
What causes structural inflation in developing countries?
increase in prices goods and services when government prints more money
Does Steve jobs have more money than the government?
No. Nobody has more money than the U.S. Government. Or, you can argue the Government has no money at all and is in debt.
Why cant the government print out more money?
The previous answer, while thorough, was a complete and utter lie and made no sense at all. If the government prints more money, then prices will go up, and so no problems would be solved. Think of it this way. If you and a storekeeper are the only two people in a country, and you each have $10, you might pay your $10 for some food. If the government printed more money and then you both had $20, now the storekeeper would want $20 for that same food. It's the same thing in real life, but with more people.
What happens when a government runs a budget deficit?
The government prominently collects money in form of taxes and it spends money in many ways such as defense, government jobs, aid programs such as EBT, and etc. Therefore when the government runs a budget deficit they are spending more than they collect, more than likely effecting the national savings.
What is the full form of TOLL?
Money, money and more money for the government.
When there is no gold what does the government back its currency with?
Promises and happy thoughts. The value is pegged to the GDP of the country that makes the promise of value so when that country's GDP goes down and its gov't prints more money, the existing value drops.
If a country prints more money during a currency shortage, does it make the country richer?
Answer: No, too bad for the country. It just makes money less valuable.
How can overproduction hurt the economy?
Overproduction can hurt the economy because when there is more of a thing, it's value goes down. For example, if government prints more money it's value will drop. Similarly if something is over produced there will be less demand and more supply thus losing it's value.
