Balloon Economy

Topics: Money, Inflation, Money supply Pages: 1 (457 words) Published: March 21, 2012
I have always wondered why our country cannot just make lots of money to pay all of its debts and to distribute to all Filipinos. I was thinking that this way we won’t have to deal with poverty anymore. This way we will have enough money to pay everything. After researching and thinking about it, I realized how naïve I was. The government cannot just print out more money for it will drastically affect the balloon economy. For me to further elaborate my point, let us imagine a balloon. Not an inflated one, but a new one that you just bought from a store. This deflated balloon is still so small that I cannot appreciate its beauty as a balloon. So I put more air in it and it grows to a considerable size. Imagine that the balloon is the economy, and the air inside it is the money circulating in the economy. If we put more money in the economy (through making debts or printing more money), there will be more air, and the balloon will get bigger. When there is an abundant supply of something, its value tends to decrease. This also applies to money. As the number of circulating money increases, the value of money decreases. Now, what does this mean? It means that the purchasing capacity of money decreases, and so the prices tend to increase. This phenomenon is something we are all familiar with – inflation. There are many causes of inflation but all of them have the same effect – an increase in price of commodities. As the balloon economy gets bigger, the prices also increase. We all know that if we keep on pumping air into the balloon, sooner or later it will burst. So to prevent this, we must let air out by loosening our grip on the end of the balloon. This is what we call deflation. After inflation, deflation usually follows. Since the prices of goods are too high, consumers tend to purchase less. So the supply tends to be higher than the demand. There is a surplus of goods and services. And as I discussed earlier, a surplus of something makes its value decrease. So...
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