Question about the economy and money

Luke1993

Well-known member
Okay, I'm not very well educated and know nothing about the economy and how it works, but I am going to take a risk and ask a question, please don't judge me, I just want to know the answer to this.

So there has been a global recession around the world right? All I know is that it started with the banks. Also many countries are in debt. My question is, to solve problems like these, why don't governments just print more money off?
 

Rembrandt Broam

Well-known member
Okay, I'm not very well educated and know nothing about the economy and how it works, but I am going to take a risk and ask a question, please don't judge me, I just want to know the answer to this.

So there has been a global recession around the world right? All I know is that it started with the banks. Also many countries are in debt. My question is, to solve problems like these, why don't governments just print more money off?

Because that would just devalue money. Money is only worth anything because there is a limited amount of it in circulation. It's the same reason that gold is worth a lot more than, say, lead. There's very little gold in the world compared to the amount of lead, therefore it has higher value.

If the government just printed money 24/7, it would become worth less and less the more they printed. To compensate for this, the price of goods would rise and rise. Countries have tried this approach in the past, and been left with a situation where people had to literally take wheelbarrows full of cash to buy groceries from the store.
 

Luke1993

Well-known member
Okay that's what I thought, but how would people know how much money is around? Who decides how much value the money has?
 

Rembrandt Broam

Well-known member
Okay that's what I thought, but how would people know how much money is around? Who decides how much value the money has?

Well the Bank of England knows how much there should be around (in the UK) because they are responsible for producing it. The value is determined by what it will buy you, which is linked to other factors such as how the pound is faring against other currencies.
 

Anomaly

Well-known member
Every extra dollar that is printed devalues all of the dollars in existence. The extreme example of this is the Weimar hyperinflation (Inflation in the Weimar Republic - Wikipedia, the free encyclopedia). If currency is devalued by, say, 20%, one would expect general prices to be 20% higher as well. If the currency is devalued greatly, products such as milk would cost $100,000,000 USD, for instance. Thus, supply is of great importance.

The buying power of currency is determined in relation to other currencies and fairly stable measures of value, such as gold. Fiat currency in itself isn't worth the material it's printed on.
 

Remus

Moderator
Staff member
Good question there Luke, money is actually an I.O.U. of course and just an abstract concept ;)
 

Luke1993

Well-known member
Okay so about currency exchanges....they're constantly changing right? Like today it's 1.58 dollars to 1 pound. And tomorrow it might change a tiny bit. What determines the changes?
 

Anomaly

Well-known member
remind me again why we don't barter anymore?

Sometimes having no universal intermediate (currency) is extremely tedious. If I wanted to buy item x a long distance away by trading for it with bricks, it would be much easier to simply sell the bricks where I am and pay for item x with paper or electronic currency. Barter would require that the people with item x actually want my bricks -- if not, I have to find out what they want, trade my bricks for that, then go back and finally get item x.
 
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