why the government of India cannot print unlimited money give answer with economic reason
Answers
Answer:
The reason is that printing more money doesn’t increase economic output in any way – it merely causes inflation.
Suppose an economy produces £10 million worth of goods; e.g. 1 million books at £10 each. At this time the money supply will be £10 million.
If the government doubled the money supply, we would still have 1 million books, but people have more money. Demand for books would rise, and firms would push up prices.
The most likely scenario is that if the money supply were doubled, we would have 1 million books sold at £20. The economy is now worth £20 million rather than £10 million. But, the number of goods is exactly the same.
We can say that the increase in GDP is a money illusion. – True you have more money, but if everything is more expensive, you are not any better off.
In this simple model, printing more money has made goods more expensive, but hasn’t changed the quantity of goods.
money-supply-million-books
Doubing the money supply, whilst output stays the same, leads to a doubling in price and inflation rate of 100%
money-supply and inflation
From year 2000 to 20001, the money supply increases without inflation. In 2001, the money supply increases 20%, and the number of widgets increases 20%. Therefore, prices stay the same – the extra money is matched by an equivalent rise in the money supply. It is only in 2003 when the money supply increases from 14,000 to 20,000 that the money supply increases at a faster rate than output and we start to get rising prices.
Answer:
government cannot print unlimited money because money is printed according to the need of the particular state the government fix a particular budget or fixed amount of the money to be printed