Question

How does printing more money causes inflation? Mention the step by step process about how this happens.

Answer 1

Hi your question has a very simple answer. If the money supply (printing of money) increases than the real output (the no. of goods) inflation will occur because people are gonna have more money in hand but less no. of commodities to purchase.  The producers  would have to increase the price of the commodities when more money is available within the household and this will gradually lead to more printing of money as consumers desire to purchase more commodities irrespective of its price due to the availability of money with them and  this cycle leads to the problem of inflation. Hope this answer is useful.