Reading Assignment

Money and Its Impact on the Economy

Money is a means of trade, and it must be held by someone in order to stay in circulation. In market, money is traded for an equal-valued good or service. A buyer’s buying power is influenced by money. While the means of trade is important in every country, printing more money does not help the economy; rather, it causes inflation, which reduces consumers’ buying power.

The Role of Money in Wealth

Money is the foundation of wealth; it applies to the assets that money can purchase, whether tangible or intangible. People will amass more capital if they have more income. however, the quest to have more money in the economy cannot be satisfied by printing more of the same money. Additionally, when the money in circulation is a lot, the prices of commodities are affected and this will prevent people from acquiring more goods with the extra money they have. Printing money leaves people in a harder situation than before.

Inflation and Its Consequences

Inflation arises when there is a lot currency in circulation resulting in an increase in the prices of goods over a period of time. Production of commodities is affected because it becomes expensive to manufacture the products. The high cost of production is passed to consumers who are unlikely to purchase the items because of the high cost of living.

Inflation refers a continuous increase in the price of goods and services within a given period. One of the primary causes of inflation is an increase in the money in circulation. Inflation is similar to tax because both determine the purchasing power of a consumer. An increase in tax on consumer goods increases the price of the items meaning a buyer spends more to acquire the commodity. Similarly, high inflation rates negatively affect the cost of living by increasing the price of goods and services. Though inflation is caused by an increase in money in circulation, consumers spend more to purchase products.

Government Debt and Its Impact

The national debt increases when a government borrows too much money. To settle the debt, the government puts in place measures such as increasing the taxes on certain commodities. Additionally, increased government borrowing pushes up the interest rates because of the looming uncertainties on whether the government will manage to pay back the debt. Printing too much money increases inflation. When a government prints a lot of money, it increases the money in circulation which negatively affects the economy. The undertaking also reduces the value of the national currency and the cost of goods increases. Huge government debts and printing of money all result in a high cost of living because of the increase in prices of consumer goods and services.