Question

Assume that you are one of six thousand people who live on the small island of Tap. This island is small and can only produce a maximum of six thousand bags of corn a year (ignore technological advances in corn production that are occurring elsewhere in the world). The six thousand bags of corn produced are just enough for the residents since each resident only earns enough to buy one bag of corn a year (a pity since the Tapese really love corn!). The currency on Tap is the US dollar. Now suppose that the government of Tap injects more US dollars into the economy, and the result is that person now ends up having twice the amount of US dollars as he or she did before. Make a logical prediction about prices of corn in the economy, and explain what principle of economics is illustrated in this scenario. Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

Answer 1

Key points from the case: The six thousand bags of corn produced are just enough for the residents since each resident only earns enough to buy one bag of corn a year. Government of Tap injects more US dollars into the economy.

Hence this will make a case where more money is chasing a few goods. Hence price levels for corms will go up as people have more money but supply of corns is the same.

The term in economics for this case is 'monetary inflation'. It is due to more supply and less demand for money. Inflation( Sustained increase in general price levels) is occuring due to more supply of money in an economy.

Link: https://economictimes.indiatimes.com/news/international/business/imf-sees-venezuela-inflation-at-10-million-per-cent-in-2019/articleshow/66139421.cms

Or student can search for Venezuela inflation causes on internet.

Practical and real world example is Venezuela. In last few years, inflation has risen by 10 million percent.

Venezuela had taken loans from various countries. To repay the loans they thought that printing more money and giving back can be the solution. However, it should be noted that money is also affected by demand-supply changes. If supply of money is going up without corresponding change in demand then it will lose its value and it will not be able to achieve desired results.