A simple and somewhat naive response to the lack of resources in a society is to “print more money”, and although it may seem like a joke in many cases, It is a genuine doubt for many people why this is not a viable solution, which is why here we explain why it is a bad one.
The negative effects of increasing the money supply are mainly reflected in inflation, when there is more money in circulation, The purchasing power of the currency decreases or is “diluted”, which causes the cost of goods and services to increase, causing an imbalance between supply and demand.
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Savings lose value with inflation, in addition to the cost of living increasing, attracting economic and social instability; In extreme cases this leads to hyperinflation, which It is when prices rise uncontrollably, causing the currency to lose all of its value.
If money is printed excessively, interest rates would be affected as a result of excess liquidity in the financial system.
The economic gap worsens
High prices affect low-income families, who must spend a greater portion of their budget on basic needs such as food and housing. Likewise, companies with real estate assets can see an increase in their wealth during inflation, widening the gap between rich and poor.
This strategy involves reducing public spending, by reducing aggregate demand, which can help control inflation. On the other hand, increase taxes to reduce consumers’ disposable income.
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