When a national economy grows and “makes” more money, does it necessarily mean other economies shrink?

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Hi! I don’t know much about economics and maybe didn’t know the right terms to use when searching, but I guess this wasn’t asked before 🙂 If a country produces and sells goods and services internally as well as in exports, for money, and people accumulate it/save it inside the country this money has to come from somewhere, right? But at some point, if things that can be exchanged for money keep being produced, there’s also the need to make more money to “stand in” in for the value of those things? If my currency x is worth the same as the dollar, and I make more of it, let’s say double what is currently circulating, it will be worth roughly 0,5 dollars, right? How is it that more money is put into the economy without lowering it’s value? Does it have to come from other countries?

In: Economics

you asked two different questions so I’ll answer them separately

**1-** **When a national economy grows and “makes” more money, does it necessarily mean other economies shrink?**

Yes and No when a country start producing more generally their imports decreases, and they start making money, but that could also make the country more eager to consume more because they’re richer, the US for example has a trade deficit because they consume a lot.

**2- How is it that more money is put into the economy without lowering it’s value? Does it have to come from other countries?**

Investment catalyses the production of goods and services which in turn raises the revenue which means consumption goes up internally and externally, which raises the demand for more currency and then it”s okay to raise the money supply, a good example here is the US where they can just print more money compared to other countries because the petrodollar policy means that there will always be more demand for the Us dollar.

> When a national economy grows and “makes” more money, does it necessarily mean other economies shrink?

No. This is not a zero sum game. That is what they thought 250 years ago. Mercantilism was the zero sum game, where it was thought that selling goods to other countries made you poorer. Then Adam Smith showed that wasn’t true, and modern economics understands about comparative advantage, which says that the most efficient producers should be producing those goods, regardless of national origin. With that point of view, that all free market activity enriches us, since all trades make both parties richer (theoretically, but we are talking about humans here) the trade would not occur unless both parties thought they’d be better off, that is, richer, than before the trade. That means trading with Peoria is the same as trading with Tehran is the same as trading with Beijing. All that trade is making the world a richer place.

> How is it that more money is put into the economy without lowering it’s value?

Because the value of goods and services has increased more than the amount of money put into circulation.

Let’s say that 2% more money is injected into the economy (the Fed targets inflation at 2%), but the economy grows at 3%. That gives you the spread needed to keep the economy going nicely.

> If a country produces and sells goods and services internally as well as in exports, for money, and people accumulate it/save it inside the country this money has to come from somewhere, right?

Money is not the substance of an economy, money is the lubricant. If you get a bigger engine, you probably need to put more motor oil in it for it operate correctly. But motor oil doesn’t make up the bulk of your engine. People mostly accumulate wealth through real estate, stocks, bonds, privately owned businesses, things like that. Actual currency is a small portion of wealth accumulation. I get the currency first, but then I quickly use it to invest in something else.

> If my currency x is worth the same as the dollar, and I make more of it, let’s say double what is currently circulating, it will be worth roughly 0,5 dollars, right?

If you doubled it suddenly just on a whim, then yes that would be more or less true. In fact it might fall by a lot more than that, because people don’t want to use a currency which is subject to sudden whimsy. But if you doubled it over time because your economy is growing quickly, there is no reason the exchange rate has to change. The money doesn’t need to come from outside, it can just come from your printing presses, or your central bank’s account ledgers.