3 Answers

Governments print more money in times of crisis particularly when they cannot borrow anymore money by issuing Government Bonds, such as Gilts in the UK. There is a formula used by economists to best show what happens when a government printsmoney.

MV = PT

where

M is the amount of money in circulation

V is the velocity of circulation of the moneyin the economy

P is Price

T is the number of transactions taking place.

Given that V and T remain constant it can be seen that by printingmoney say by twofold this will lead to a doubling of prices. There will be too much money chasing too few goods and retailers etc. will increase prices as the printed money hits the economy. Also more foreign goods will be purchased leading to an erosion of the currency of the country that has printed the money. Zimbabwe is a classic example!