The Politics of Inflation

In order to understand the policies of inflation, you have to understand that one of the functions of money is to serve as a differed payment standard. This means that if you were to borrow $1000 to invest in your business and you would promise to pay the bank $1200 the next year. The years before the prices in the economy have maintained stable and particularly in the case of the type of business you just so happen to have.

However, an idea comes to you, you decide to lobby a person in congress so as to convince the government to print more money. All of that new money causes inflation, after which the prices of the products in your business increases up to twice as much. Now you will only have to sell half of what you needed to sell before in order to pay off your debt to the bank and you are then left with more of your product as well.

Borrowers, of course oppose to the desires of inflation from the lenders. If you were to go to the bank you would do everything you could to stop inflation because, if one were to come up, you not only lose the benefits but also would not be able to recover what you lent out. in the first year, your $1000 loan would have been equivalent to the products in a business, but after inflation you would only recover sixty percent of the products. This means you will have lost forty percent of the value of the loan. If there were to be an excessive inflation, the loan could become exhausted.

While economies use money, lenders and borrowers will always be confronted, each one trying to influence on the government.

Stimulating the Economy with Inflation: One much more legitimate reason for the government to print more money receives a very respected name in monetary policies. Monetary policies refers to the decisions a government makes in relation with increasing or decreasing the monetary demand to stimulate and decelerate the economy.

The basic idea of this is that if the economy is in a recession, the government can print new money and spend it. All of the goods and services they buy with the new money stimulate the economy right way, besides this, all the businesses that received money from the government can now go out and spend it. Whoever receives it will also go out and spend it on things. In fact, in theory, this can continue on and stimulate great economic activity, enough to pull an economy out of recession.