Printing money causes inflation—that causes the Fed to raise interest rates

David Gorton, "How Does Money Supply Affect Inflation?," Investopedia, 5-30-2023, https://www.investopedia.com/ask/answers/042015/how-does-money-supply-affect-inflation.asp-- 嘉玮

Does Printing Money Cause Inflation?

Yes, "printing" money by increasing the money supply causes inflationary pressure. As more money is circulating within the economy, economic growth is more likely to occur at the risk of price destabilization.

What Happens If Money Supply Growth Exceeds the Growth of the Overall Economy?

If the money supply grows faster than overall economic growth, inflation will occur. If the difference between the money supply growth and the growth of the economy becomes too wide, hyperinflation occurs.

Is the Money Supply and Inflation Related?

Yes, the money supply and inflation are related. To combat unemployment, the Federal Reserve increases the money supply, promotes economic growth, and makes debt cheaper. However, these policies have the potential to cause inflation. Alternatively, to combat inflation, the Federal Reserve tightens the money supply, constricts economic growth, and risks increasing unemployment.

How Do Interest Rates Affect Inflation and the Money Supply?

The Federal Reserve changes the federal funds rate to make it more or less expensive to incur debt. When the Fed raises interest rates, it becomes more expensive to incur loans, more difficult for companies to grow, and more difficult for inflation to occur. When the Fed lowers interest rates, it promotes economic activity, though this is more likely to cause prices to rise.