Why we can’t just print more money
Printing more money in theory should mean that people will have more money and as a result will be richer, right? Wrong! Printing more money would mean that there would be more money circulating in the economy, so people would have more money. However, usually when people have more money they spend more, meaning the demand for goods and services will increase but supply is likely to stay the same. This would lead to suppliers increasing their prices, so peoples purchasing power would fall as the real value of money falls, i.e.. there will be inflation.
This means that printing more money would just push up prices and people wouldn’t be better off. Not only this but if there is inflation people will actually be worse off, this is due to the real value of their savings falling. So now their savings will be worth less so if they are saving for a big purchase like a deposit for a house they might have to delay buying a house, however while they keep saving house prices could increase, there could be further inflation and so the individual might never be able to buy a house. During times of inflation there also is uncertainty, so businesses would avoid investing and expanding and so on so there might be less innovation, less job opportunities and so on. Businesses might also try to cut costs during times of inflation so many could be made redundant, losing their income sources.
During times of inflation, interest rates increase which could benefit people that are saving. However if inflation is higher than the interest rates than the reward on savings will be eroded by inflation. Thus, overall printing more money in most cases is not a way that people can be made richer. Although, the government does sometimes increase the money supply electronically to lower interest rates and help keep inflation at a stable rate i.e. quantitative easing.
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