Exactly how does money work?

Question

I don't mean the spending of it and the exchange of it for goods etc. I mean, you hear on the news all the time that countries are in debt/ people and governments are spending too much... so... why don't they just simply print/make more money to put into circulation?

For example: The London Olympic Stadium is costing around £9.35 billion ( I may be wrong. Source: http://www.iht.com/articles/2007/03/16/news/london.php)...

my question is why fuss over this price? and why not print more money for it?

Would this have a disastrous effect on an economy?

Answer 1

You can only print as much money as gold reserves the country owns I think, If you printed extra then it would be worth less,

I think other countries did print more and thats why you get 1000s of a certain currency but their only worth a few quid.(uk)

Answer 2

It's best to avoid mixing together the two issues of wasteful government spending and increasing the supply of money.

Wasteful government projects like the Olympics are bad because they divert economic resources from important things. I.e. if you have a thousand builders working on a big, useless stadium which isn't needed for any other event, these builders cannot be used to build any other homes, roads or improve other infrastructure that the economy needs.

The money supply is a separate issue, and is determined by the interest rate. When interest rates are lowered, the money supply increases, and economic activity and inflation rise. When interest rates are raised, the money supply falls, and with it economic activity and inflation fall. The Monetary Policy Committee of the Bank of England has the responsibility to set interest rates at such a level as to ensure stability.

A lack of money isn't the reason why it's bad to waste 9.35 billion on the Olympics, it is easy to find that money, the problem is it makes everyone poorer as the resources (not the money) will be taken from elsewhere.

Answer 3

the thing that you can print money just for the gold you have is false. you cant print all the money you want because that would cause inflation and the money would have less value. The Fed prints money based on their calculations of durability of a bill or their calculations they have on how much money is needed in the economy according with the monetary policy they want to apply. The Fed burns millions of dollars in bills every day and substitutes them with new bills, thats why they are always lookiung to make more durable bills.

Answer 4

If you simply print more money, then the value of the dollar (or euro) drops. If governments printed enough money to get them out of debt, the country would go into a depression. The value of the currency would be next to nothing, depending on how much the government printed.

Answer 5

The UK economy is worth a certain amount, irrespective of how many notes it prints. The more pounds the government prints, the less each one is worth, with respect to other currencies, so printing money does not gain you anything.

Answer 6

for a govt print money they need to have some sort of assets in stock agianst which they print this mooney....it used tp be gold.....however today it takes into account all sort of assets......for some developing economies even dollars and pounds fall into this category....printing new money is the easiet solution to writing of ur debt....however u need to keep in mind the exchange rate and the rate of inflation.....too much money in the economy and prices will rise, while the exchange rate will fall........

Answer 7

The Government seem to "print" their own salaries, pensions, and expenses, still that's O/K they make up their own rules for themselves, and **** the rest of us.