Printing more money doesn’t increase economic output – it only increases the amount of cash circulating...

Printing more money doesn’t increase economic output – it only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices. Prove or disprove

Expert Solution

In orthodox economic logic, monetising the fiscal deficit is a red herring, as most analysts will correctly caution against printing money to fund deficits, citing inflation as a major concern. The explanation is that it does not increase economic production by printing more money-it just raises the volume of cash circulating in the economy. As more cash is printed, more items will be ordered by customers. But if businesses do have the same quantity of products, they will react by pushing up prices. Printing currency in a normal environment is only going to spark higher inflation. The sum of money in circulation would also be in line with the economic production that the economy generates.

The world is far from usual right now, though. In particular, the Indian economy suffers from a double whammy of supply-side constraints due to the unavailability of labour for production, as well as a lack of demand due to the depletion of income and a general dampening of market confidence, resulting in a dramatic decline in consumption.

Rahul Sunny answered 2 years ago

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