a couple of dumb questions.

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I feel a bit of a bimbo asking these but im going to anyway :snooty:

  1. How to banks make money?

  2. Why cant a country just print more money?

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Re: a couple of dumb questions.

**1. by lending and making money in interest payments.

  1. your national reserves [national assets] must be in line with the money you print. you must have assets to back the money you print. if you keep printing money, it’s purchasing power is reduced because more people have more money to buy thus causing a competition among buyers. this causes ‘runaway inflation’ which is always bad.**
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Re: a couple of dumb questions.

U need to read basic economics book :D

Shortly..

banks make money by......taking money from you (your deposit)......and then they lend it to some industry....... so what actually happens is....the bank gives you interest @ 5% on the 100$ that you deposited.........and it receivs interest from the industry (to whom it lent) @15%...

so basically.....the bank earned 15-5=10% intrest on 100$.....

2..... thats quite long of an answer.....about printing money........but in short......if a country prints more and more money....... it will increase inflation a LOT.....and the value of currency will be diminished.........for example....it will cost you 1million pounds to buy an egg..

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Re: a couple of dumb questions.

:smack2: me ko yad thaa bhool gaye :smiley:

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Re: a couple of dumb questions.

So what if the country prints money less than what is related to its reserve?

The salary may go down but the price may reduce? Like an egg may cost one rupee and not one million rupees.

What is the problem there?

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Re: a couple of dumb questions.

Paper money isn't the issue here ... even if you think electronically about it ... if a country is lent $5,000,000,000 and has to pay back $6,500,000,000 .... let's say it just puts this value in to its system by adding $1,500,000,000 without putting this money into the various sectors from which value is added by sales or investment in growth .... what this bank has effectively done is only devalued the currency - and the interest is still owed ... before it was $6.5 Bil / $5 Bil = 1.3 --- and if it added fake digits to the sum then it would have to owe $6.5 Bil by 1.3 = $8.45 Bil which would be the same value as the $6.5 Bil before the sum was added ... Therefore printing more money or adding digits on the screen is the same as taking the wealth of a nation and dividing it into smaller and smaller amounts ... Let's say a cake is the wealth of a nation and a piece of cake is the currency unit ... If the cake is split by 8 then there are 8 pieces of cake in the nation ... or 8 units of currency ... by printing more money each piece of cake is being further cut let's say to make 16 pieces of cake ... so although now you have a higher number of pieces but instead each piece contains less cake ... hence the currency unit has been devalued.

Value of currency has an important factor in the exchange rates with other currencies and that is the reason why making a currency strong is the idea because then import goods are cheap and value made on them i.e. by processing them will add greater value to the business and since the business places it's money in the bank then it means more money for the bank and the amounts that they have borrowed can be paid more easily.