Why doesn't government print more money?

[this is a continuation of my last blog: "Does money grow on trees?" ]



As a child, I often thought, why are we a developing country, why is there poverty, why doesn't everyone have enough money to buy everything that they need?

To this, I often questioned as to why doesn't our government (or RBI for that matter) print more currency notes, so that everyone could be rich?

(I bet at least 9 out of 10 people reading this must have thought it too :))

Mummy, being a banker herself assured me that the RBI was indeed printing a lot of new notes, but somehow more money it printed, more costly things became and most people still remained poor, if not gotten poorer.

So I thought, may be they should buy more printing machines and setup more plants for printing currency instead of trying to do so many other things like roads, education, health care etc.

what if the government borrowed a helicopter; filled it with notes and sprinkled the money all over the nation?

Would it solve the problem and make everyone rich?

Think! Think! Think!

(Coming to think of it, this might actually help; as for the first time, the villagers or the farmers would likely get a larger share attributed to the widely spread farmlands (surface area) compared to the high rise apartments piled up on a tiny piece of land in the metro cities)

By now, you understand how hard I worked all through my childhood towards solving the countries economic/poverty problems and more so, towards becoming rich :)

Some of my more adventurous ideas included trying to discover/mine for treasures under an ancient fort, a temple or a river; or searching for sunken treasures under the ocean; or even robbing a bank for that matter (the place where all the money sat!)

Coming back to our more legitimate ideas of growing money on trees and printing more money...

Let us consider two scenarios or two questions or two hints...

Scenario 1

Imagine… what if all the money with everyone was to become 10 times starting tomorrow. (i.e.: 10 rupees notes become 100’s, 100’s become 1000’s and so on. The money in your bank also becomes 10 times, so does your salary and so does your loan…)

How do you thing the prices of potatoes (selling for 10/- a Kg today) would get affected tomorrow?

Would potatoes continue selling for 10/- per Kg or increase to 100/- per Kg?

Scenario 2

Let us suppose there is an island with a population of100 people. Unfortunately, all the food currently produced on the island is just enough to feed 80 people (say we have about 80 pizzas)

How do you suppose we address the food shortage?

Will printing and distributing more money to people solve the problem? Or will producing more food help?

Think through while I attempt to complete my next blog...

[Continued in my next blog: "the thing called money" ]