Why does the value of money change?

Answer 1

The shortest and easiest reason that money has value is that the government requires money for taxes.

The central bank will sell and lend money to member banks which puts money in circulation. The government will also borrow money from the people by issuing bonds and spend it. Taxes cover this spending and the interest on government bonds. Money facilitates transactions and is a store of some value, but at the end of the day the government requires tax revenue in the country's currency. Since most everybody owes tax of some sort, they require money in their country's currency to pay that tax.

Answer 2

Inflation has many causes. In times when the economy is good and people have enough money they want to buy more products than factories can produce, so the prices go up.

Inflation can also happen when worker's demand more money or when the raw materials that producers need rise in price. The end product becomes more expensive and has to be sold at a higher price.

Some economists say that central banks do not do enough to control how much money there is in a country. There may be more money around than there are goods. Consumers want to buy more products, the demand gets higher and prices go up. Sometimes low interest rates on loans make people borrow money to buy houses or cars. These prices go up as well.

Inflation is not produced by one country alone. Sometimes a country cannot control the prices of certain goods as it would like to. A country that does not have any energy supplies of its own has to import energy. It has to pay a high price for oil and gas.

Inflation in the past happened in times of crisis, war or conflict. Governments printed too much money and didn't have the goods that people could buy. This happened in the final years of World War II. By the end of the war the German currency was not even worth the paper on

Answer 3

Some broad effects of changes in value of money are traced below:

1. Price fluctuation implies that the value of money is unstable. This adversely affects the confidence in money as money fails to serve as a good store of value.

2. Even as a means of payments it loses its growth. It may also become a source of peril and confusion. Since prices of all goods do not change in the same order, the relative price structure is distorted.

When prices of necessaries tend to rise while those of luxuries may be falling, there is regressive effect, as the poor consumers suffer, while the rich are benefited while spending their money.

3. Price variations in product and factor markets are not uniform. Thus, the cost-functions and revenues in different categories of production differ. As a result, profitability of firms and industry tend to differ.

Marginal productivity of different factors in different uses never tends to be identical when the value of money fluctuates in segregated manner. This obstructs the optimal utilisation of resources. This may also cause maladjustment and wastefulness in the exploitation of country's productive resources.

4. When value of money changes incoherently in different types of real and financial assets, assets portfolio management becomes a difficult task. It also distorts the pattern of wealth distribution and position of the wealth holders.

Say, for instance, when share prices fall but real estate prices rises, then person who has invested in shares is a looser while person occupying a real estate of the same amount is a gainer.

Such changes in different values of wealth due to unstable value of money distort the pattern of income distribution. Consequently, savings and investment may be adversely affected. It also disturbs business expectations and business planning. Business risks would be high when value of money in not stable.

5. Effects of rising prices in general inflation effects are also different from the effects of falling prices in general the deflation effects. Especially, tempo of growth process and economic development is disturbed due to instability in the value of money. It also adversely affects the course of economic planning and programming both at macro and micro levels.

In short, most of such harmful effects are indirectly by the menace of 'inflation' and 'deflation.' Inflation implies declining value of money. Deflation implies rising value of money.

Author: Rana Shahbaz Khan

Contact: urban_shazy@hotmail.com

Answer 4

because people are greedy and want more of it. i dont how to do?

how can get money back

Answer 5

currency rates change overtime because of the value or the currency goes up and down (varies)

Answer 6

Three main reasons why currency values fluctuate are internal events, external events, and market demand. See related links for more detail explanation of each area.

Answer 7

by floating currency