Should we print more money?
Like many countries around the world, the UK is facing some problems with inflation. Despite being within the governments target for inflation (anywhere between 1% and 3%) the general public still aren't entirely happy, and it's not too difficult to work out why.
When inflation occurs, the prices of goods and services rise, that's all that really happens. The positive side of this is that you can generally expect to see a rise in wages as well, to try and maintain some sort of balance. What this really means is that although prices are higher, you have more money to spend, so it's not really an issue as such.
However, in the UK, wages have only increased by 1.4%, which falls a bit short of inflation (currently at 2.7%) so what's happening here is that goods and services are getting more expensive, and consumers aren't seeing a sufficient pay rise in order to counteract it.
So people aren't all that happy at the moment, which will have only got worse considering the Bank of England have announced they plan to increase the amount of quantitative easing. To keep things simple quantitative easing is effectively printing money. It's a way to pump more money into the economy.
"What a brilliant idea, we're all rich!"
Unfortunately it's not quite as simple as that, an increase in money means the value of it decreases, and therefore we need much more money to buy goods or services. To cut a long story short, printing more money causes inflation.
"But if inflation increases, we're doomed!"
Not necessarily. Inflation only occurs if people were to spend all this extra money that goes into the economy, if we were to save it then the inflationary effects are very small. This idea is known as the velocity of money. It's basically how often transactions are made. When a country is in a recession, the majority of people save there money and so the velocity of money is low and inflation won't occur as much, if at all.
In case you haven't noticed, the UK is in a recession, so maybe printing more money isn't too bad an idea?
When inflation occurs, the prices of goods and services rise, that's all that really happens. The positive side of this is that you can generally expect to see a rise in wages as well, to try and maintain some sort of balance. What this really means is that although prices are higher, you have more money to spend, so it's not really an issue as such.
However, in the UK, wages have only increased by 1.4%, which falls a bit short of inflation (currently at 2.7%) so what's happening here is that goods and services are getting more expensive, and consumers aren't seeing a sufficient pay rise in order to counteract it.
"What a brilliant idea, we're all rich!"
Unfortunately it's not quite as simple as that, an increase in money means the value of it decreases, and therefore we need much more money to buy goods or services. To cut a long story short, printing more money causes inflation.
"But if inflation increases, we're doomed!"
Not necessarily. Inflation only occurs if people were to spend all this extra money that goes into the economy, if we were to save it then the inflationary effects are very small. This idea is known as the velocity of money. It's basically how often transactions are made. When a country is in a recession, the majority of people save there money and so the velocity of money is low and inflation won't occur as much, if at all.
In case you haven't noticed, the UK is in a recession, so maybe printing more money isn't too bad an idea?
Your Turn
Do you agree? Should we be printing more money? Post your comments below!