How does money work? Does the government just keep making more of it?

Question

what is there to back money up? how did money get so valuable? i understand that it's kind of like bartering but just a more organized way, but why doesn't the government just make a bunch of money and give it to poor people?

Answer 1

Money is a substitute for gold for that reason it is called soft currency. It is supposed to be backed by gold which is called hard currency. Instead of having to carry around a pocket full of gold to purchase things with you carry the paper money. While gold which it represents is kept in GOVERNMENT VAULTS. The main one being Fort Knox..

The reason the government does not print a bunch of money like you asked is because they have to have the gold to back the money up, It is like this:

If you have 1 oz. of gold and you have the exchange rate set up at $35.00 for 1oz. of gold. That means each time you spend $35.00 what you are really doing is spending 1 oz. of gold.

Now if the government decides to print up a whole bunch of money but still only has just that 1 oz of gold, then all that money is going to worth just 1 oz. of gold.

An example of that could be something like this. Let's say you just bought a new blow dryer and it cost you $35.00. Which means you paid 1 oz. of gold for your new blow dryer. So you can say your blow dryer is worth 1 oz. of gold.

Then the government decided it needed more paper money in circulation so it printed up $35.00 more dollars. But it still had only that 1 oz. of gold to back it with.

Then just when your 90 day warranty was up your new blow dryer burned up because lighting hit your house. You have to go buy a new blow dryer.

When you go to the store you almost have a fit because now the same blow dryer is going to cost you $70.00. You grit your teeth and pay for it wondering why the price doubled.

The price did not double. Your blow dryer is still costing you 1 oz, of gold. But because the government printed up more paper money than it had gold to cover it, the paper money is worth less. in hard currency or gold. Now it is taking $70.00 in paper money to represent that 1 oz of gold instead of just the $35.00 in paper money when you bought the first blow dryer since they printed up twice as many dollar bills to be coverd by that 1 oz. of gold, you money paper money was worth only half as much.

The is a term for that It is called inflation. Which means the more money a government prints up without having the hard money namely gold to back it up the less the paper money is worth and the more things are going to cost in paper money.

the money paper money the government prints up the less the paper money will be worth in hard currency namely gold. And if the government just keeps on printing more and more paper money without the gold to back it up the whole economy of the country will collapse. Which is what happened in Germany between World War I and World War II. The German money actually got so worthless the Germans were having to take a wheel borrow full of money just to buy a loff of bread. which in turn led to the collapse of the government and the rise of Hitler.

Answer 2

One word: value. A thing isn't nearly as valuable if there are several trillion of them floating around. Consider pencils: they're everywhere, so you can literally pick one up for a nickel. However, if there were only three pencils in the entire world (and, of course, no other means of inscription available), people would pay a fortune to own one because it is a necessary product. Money works in sort of the same way, except that it is a representation of value rather than value itself. Our money, since it is no longer backed by anything valuable (meaning gold or silver, which never have a value of zero), basically has to assume a level of value equivalent to that of the country's economic health. In either circumstance, there's a limit to how much value a dollar has; if the government goes and prints ten thousand more one-dollar bills to replace one hundred older one-dollar bills, those ten thousand must split the value of the older bills between themselves. In this instance, that would mean that one older bill is equal to one hundred new bills, or that the value previously assigned to a penny is now assigned to a one-dollar bill. That's a rather drastic shift, and I can't remember it ever happening in the United States -- but it's possible. To make a long story short, the government can make all the money it wants, but it can't create value. Only the economy can do that, and only if it's healthy. Printing more money would actually make more people poor: it would decrease the value of each dollar so much that what was formerly a reasonable sum of money would no longer be sufficient for daily life. Another moral is that the government can do whatever it wants to the economy with the intention of improving things, but an economy doesn't respond well to brute force and is likely to become unstable in such an event. Hope this helps!

Answer 3

How Does Money Work

Answer 4

This Site Might Help You.

RE:
How does money work? Does the government just keep making more of it?
what is there to back money up? how did money get so valuable? i understand that it's kind of like bartering but just a more organized way, but why doesn't the government just make a bunch of money and give it to poor people?

Answer 5

Lol, no. The printing of money has nothing to do with the money supply. More money exists in digital 1's and 0's than in cold hard cash. Those 1's and 0's don't need to be backed up by cold hard cash either. Why? Because all of the money in the U.S. exists in the form of loans. That is why banks are so important to the economy. See whenever you use your credit card, you are actually making money. The money supply fluctuates quite a bit on a day-to-day basis because of this. Banks loan money to each other, and if in large enough sums, they can also get loans from the Central Bank. That is the government bank where you always here about the Fed raising interest rates, etc. Mainly only banks can get loans from the Central Bank.

The goverment can control the outstanding money supply through the purchase and sale of U.S. Treasury bonds.

Answer 6

the government doesn't control the printing of money, the federal trust is actually a private corporation. Don't believe me? Here is a good site http://www.apfn.org/APFN/fed_reserve.htm

Answer 7

They could print up as much as they wanted, but then the money's perceived value would be less. It's called inflation. In the 80s Brazil tried to print their way out of hard times, and the economy fell apart.

People were selling pachs of cigarettes for their weight in paper money.

Answer 8

Money is backed up (In the United States) at Fort Knox. I believe they have a gold bars to balance out the supply of money.


Money is circulated, and once money reaches a certian age or worn state, it is returned to the mint (Factory?) and is shredded.

Answer 9

Money is, as far as I can tell, a complete fiction. Consider if you will the stock market. Can you look me in the eyes and tell me that the real net worth of the economy has dipped 5% because of a rumor? Economists sure do and believe it.

But I still want it.
HJ

Answer 10

Money is backed up by public trust.... I have faith that the government can maintain a balance between the value and the trust I put in it..

Answer 11

yes

here's a fun fact, there is more monopoly money printed that actual dollar bills.