Why does the government take loans.

 Why does the government take loans without printing as much money as it wants?

Make Money

🔔 Suppose you are in a small country. Only apples are available there. In one year 10 kg of apples are produced. ঐ The government printed a total of 1000 rupees that year. Then there is money to buy 1000, the product has 10 kg. Then the price of apple will be 100 rupees per kg. If the government printed 1500 rupees, people could buy it at 150 rupees per kg. That is, if there is more money, the price of the product increases, the value of money decreases.

🎓 It is absolutely simple explanation, there is an equation in the language of economics. Quantity of Money Equation. MV = YP

🌍 Here,

M = Circulation of Money

V = Velocity of Money

Y = GDP

P = price of the product

(GDP is the total amount of goods and services produced in a given geographical area in a year)

Velocity of money remains fairly the same at a given time. GDP does not increase in a hurry.

In that case, if the supply of money increases, the price level will increase. There will be inflation (increase in the price of goods against money or devaluation of money).

💵💵💵To give another example, the Zimbabwean government thought it would develop the country by printing money. They started printing a lot of money. But the production of goods and services has not increased.

Then it was seen that a lot of money was in people's hands. On the other hand, products and services are the same as before. Naturally, the prices of goods and services started rising. And at one time I had to buy one kg of round potatoes with one sack of money!

So the question is how much money does the government print?

The government has two objectives,

One-on-one product and service exchange to stay smooth.

 Two - the value of money so that the desired meaning.

👍The amount of printing this money is not fixed. Rich countries typically account for 2-3 percent of GDP, while developing and LDCs print a little more.

(I am not a student of economics, I read with interest; maybe someone can give a better explanation of economics, you can also read if you want)

Happy learning