Why do prices keep rising while incomes remain stagnant?

Why doesn't the government make everyone a billionaire by printing money? Why is the value of the rupee depreciating in terms of the dollar?

Simple Explanation for a 10-Year-Old:

Imagine the government is like a parent who gives extra pocket money (by "printing money") to big companies to help them grow. These companies are supposed to use that money to make more cool stuff (like toys, games, or snacks) and hire more people to work. When they do this, everyone wins: more jobs, more things to buy, and prices stay normal.

But sometimes, companies waste the money. Maybe they don’t make enough new things or hire people. When that happens, the money they borrowed becomes "bad loans" (like when you lend a friend your toy and they never return it). Banks get stuck with these bad loans and can’t lend more money to others.

Meanwhile, there’s now extra money floating around in the economy, but not enough new things to buy with it. So, prices start rising (like when everyone wants the same toy, but there are only a few left—so the toy becomes more expensive). But if people’s salaries don’t go up, they can’t afford things anymore.

In short:

• Too much money + Not enough stuff = Prices go up (inflation!).
• If salaries don’t rise too, people feel poorer.
• Fixing this means making sure companies use money wisely and everyone gets fair opportunities.

😊 Think of it like a lemonade stand: If you borrow money to make more lemonade but spill half of it, you’ll have to charge more for the little lemonade left. But if your friends’ allowances don’t increase, they can’t buy it!

Explanation for a 25-Year-Old:

To understand inflation, we must examine the interplay between monetary policy and corporate effectiveness. When central banks implement expansionary measures (often metaphorically described as "printing money"), they increase the money supply, frequently channeling liquidity to corporations via loans. Ideally, businesses use these funds to expand production, innovate, and create jobs—stimulating economic growth without triggering inflation.

However, when corporations fail to utilize loans productively (e.g., due to mismanagement or weak demand), these loans become nonperforming assets (NPAs). NPAs strain financial institutions, limiting their ability to lend further and stalling economic momentum. Meanwhile, the excess money in circulation—unmatched by a corresponding increase in goods and services—drives up prices. This creates a double burden: inflation rises while wages stagnate, eroding purchasing power.

In essence, inflation escalates when monetary expansion does not translate into real economic value. Without parallel income growth or productive investments, households face higher costs of living without the means to keep pace, deepening financial inequality. Addressing this cycle requires balanced policies that incentivize corporate accountability, sustainable growth, and protections for vulnerable populations.

Zimbabwe and Hyperinflation: Who Wants to Be a Trillionaire?

Why doesn't the government make everyone a billionaire by printing money?

Explanation of Inflation and quantity theory of Money?

https://mru.org/courses/principles-economics-macroeconomics/zimbabwe-currency-inflation

How Lower Interest Rates Increase Money Supply and Cause Currency Depreciation?

Lower interest rates increase the money supply and lead to currency depreciation through the following mechanisms:

1. Increased Borrowing and Spending:

• Cheaper Loans: When interest rates are lower, borrowing becomes cheaper for consumers and businesses. This encourages them to take out more loans for spending and investment.
• Higher Money Circulation: As more people and businesses borrow and spend, more money circulates in the economy, effectively increasing the money supply.

2. Reduced Savings Incentive:

• Lower Return on Savings: With lower interest rates, saving becomes less attractive because the returns on savings accounts and fixed-income investments decrease.
• More Consumption and Investment: People are more likely to spend or invest their money rather than save it, contributing to an increase in the money supply.

3. Impact on Foreign Investment and Exchange Rates:

• Capital Outflow: Lower interest rates make domestic financial assets less attractive to foreign investors since they offer lower returns compared to assets in countries with higher interest rates.
• Currency Depreciation: As foreign investors sell the domestic currency to invest elsewhere, the demand for the domestic currency decreases, leading to depreciation.

4. Exchange Rate Mechanism:

• Decreased Demand for Domestic Currency: With capital outflows and less attractive returns, the demand for the domestic currency falls.
• Increased Supply of Domestic Currency: As people exchange the domestic currency for foreign currency, the supply of the domestic currency increases in the forex market.
• Depreciation: This imbalance between demand and supply leads to a depreciation of the domestic currency's value against other currencies.

In Summary:

Lower interest rates → Increased borrowing and spending → Increased money supply → Capital outflows and decreased demand for domestic currency → Currency depreciation.