Giving Into the Temptation of Inflation
The inflation of prices is generated mainly because the governments print more paper money or produce a great amount of cheap metal coins, which considerably increase the supply of money and makes each piece of the same less valuable. As the sellers as for higher prices to compensate the loss of value of each monetary unit, inflation is then produced.
So why exactly would the government want to produce or print too much money? Well, this is actually a common question. In the past, the governments would money into circulation under these three circumstances:
- When they cannot get enough tax income to attend to their obligations.
- When they fell pressure from their debtors that want inflation to be able to cancel their debts with money that is less valuable.
- When they want to stimulate the economy during a recession or depression.
As these three reasons are learned about to increase the money supply, just keep in mind what was previously said about how the supply of money increases the demand of money more quickly, which causes inflation. Therefore, independently from the reason that a government has to increase the supply of money, a risk of inflation is run. This true both for good reasons, like when they are trying to take the economy out of a recession, as it is for bad reasons, such as trying to help some debtors pay their money with money of less value.
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