Abhijit Vinayak Banerjee(A Nobel laureate) has suggested a simple policy for India as its economy baffleed on the impact of the covid crisis: Printing money precisely and transfer cash directly to the bank account of the poor families.
Banerjee suggested that third world countries such as India dont need to worry too much about macroeconomic & hyperinflation stability
and fiscal slippages and should do ‘whatever is good for its country man’ to help those who are
mostly affected by the economic shock that many fear might be greater and more
pervasive than the Great Depression of 1929.
Lets find out
To understand just imagine a picture of balance
Where in one side total country’s GDP and in other total printed money. That’s means
TOTAL GDP VALUE = TOTAL PRINTED MONEY.
And if this condition become unbalanced so we can definitely
found us in a inflation economic condition or deflection economic condition.
So lets brake down that :
When a whole country tries to get richer by printing more money, it rarely works. Because if everyone has more money, prices go up instead. And people find they need more and more money to buy the same amount of goods.
Take an example, suppose I recently got huge money. So I went market to purchase everything what I dreamt in my life. But hay not only I everyone has that dream. So I found a huge line in malls. The owner of the mall think that hmm:
so demand , ok lets make the price very high. To earn more profit.. when I entered that mall. WHAT I pad costs Rs 300000.
And I only have Rs 150000. So the
market became like Old once again.
Cause market make every unbalence situation to balance.
Now you can say why it worse situation every thing became like previous demand & supply.
Cause earliar where $1= Rs 72
Now it will be $1= Rs 72*(inflation %+100)%.
It may be Rs 90, 100,1000 or 100000 also.
So then import will be dengerously costly.
Or we can hardly
Earliar Rice per kg was Rs 50
Now Rice per kg is Rs 150.
And if you see the price the verience to Rs 0 to Rs 50 is 50
NOW see the price the verience to Rs 0 to Rs 150 is 150.
In earliar situation earning Rs 50 is more easiar than now where you have to earn Rs 150. Cause this certain infalation can not effect immidiately or with exact percentage in employee’s wage. So definitely you will earn more than earliar situation but current wage value is less than previous wage value.
WHAT ; you don’t belive
me , Ok see it in your eyes.
This happened recently in Zimbabwe, in Africa, and in Venezuela, in South America, when these countries printed more money to try to make their economies grow.
As the printing presses sped up, prices rose faster, until these countries started to suffer from something called “hyperinflation”. That’s when prices rise by an amazing amount in a year.
When Zimbabwe was hit by
hyperinflation, in 2008, prices rose as much as 231,000,000% in a single year.
Imagine, a sweet which cost one Zimbabwe dollar before the inflation would have
cost 231m Zimbabwean dollars a year later.
This amount of paper would probably be worth more than the banknotes printed on it.