Does inflation cause more money to be printed, or does more money printed cause inflation?

Answer 1

In Australia we dont print extra money as a result of inflation.

In Australia, the inflation rate is controlled through the use of interest rates.

The Reserve Bank of Australia analyses the economy and makes decisions on wether interest rates should be raised, lowered, or if they should remain unchanged.

If inflation is high, which usually means prices have risen as a result of a short supply and higher demand by consumers, then the Reserve Bank will increase interest rates. Raising interest rates decreases the amount of money that consumers have available to spend as they must make higher repayments on loans and credit. This is known as 'tightening' monetary policy and has several impacts including:

- it effectively lowers demand for goods and services
- it normalises prices as demand decreases
- business is reluctant to borrow funds to expand as interest repayments are higher
- Consumers tend to save more as they are uncertain about the future of the economy, which reduces the amount of money in the economy

If inflation is low, then the opposite occurs. The Reserve Bank will decrease interest rates.This promotes spending as business can now afford to take out loans to expand, thus hiring new employees and increasing supply of goods and services, which increases the circulation of cash within the economy as consumers spend more money. This effectively increases the amount of money in the economy and is known as 'loosening' monetary policy.

As you can see, the actual printing of money is not an issue in increasing the amount of money in the economy. In fact, the excess printing of money has the risk of undermining the value of the currency on international markets. This would affect the price of imports and exports and create turmoil in the economy. The amount of money printed by the government is managed very carefully.

Cheers

Answer 2

Printed money causes inflation.
Inflation is defined as an increase in volume of the money supply, and deflation, as a decrease. Thus, the money supply is said to be either growing (inflating) or shrinking (deflating).

As the money supply grows, so does the demand for goods and services. When more money is available, people tend to spend more. However, when the production of goods and services can’t keep up with the growth in demand, prices usually begin to rise, that is, inflation occurs.

If there is an indication that inflation is threatening purchasing power, the Feds may need to slow the growth of the money supply. It does this by using three tools the discount rate, the reserve requirement and, most important, open market operations.

So if the money supply and the demand for goods decrease, people buy less; prices could fall and businesses would produce fewer goods. In this case, we could have an economic slowdown, or worse, a recession.

Take care.

Answer 3

Inflation is not caused by more money being printed. The Treassury has a stock of money in their hands. They use this to contract and expand the money supply throgh the policies initiated by the Federal Reserve. When inflation is high the Central Bank initiates contractionary policies and when inflation is down they choose expansionary policies. They use interest rates and taxe also for the same purpose. The former is called monitory policy and the latter the Fiscal or Keynsian policies.
Former Consultant to Federal Reserve USA.

Answer 4

Sometimes.

While the printing press is commonly targeted for the cause of inflation, most countries print money primarily to replace old currency or meet anticipated demands for currency. Currency is a small part of the economy. Money changes hands numerous times and is involved in economic transfers like checks, credit cards, and direct transfers such as what we do online. When we move money faster than we make or do things of value, then there is a perception that the things or services are more precious than the money we have to buy them, so it takes more money to buy them.

Times of high costs of production will push prices for those items up. Times of high income will pull prices up, it is a sort of sucking action or like lift on an airplane. A person can do or buy the same things in Palm Springs, California or some small town in Oklahoma, but it will cost more where the money is. The small town Oklahoma worker who asks you "do you want fries with that?" will be working for at or close to minimum wage. Trust me, the same job in Palm Springs, California won't be done for anywhere close to that. Both can take place whether there is national inflation or not, they are pieces of the aggregate picture of the whole economy. The printing press in Washington usually has very little to do with the perception that prices are high in California and not so high elsewhere and if you happen to be in California then you see that something is comparatively wrong. This interplay of causality and lack of causality lets us jump to some strange conclusions sometimes.

Answer 5

the latter - because its worth less then