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    Tnis may sound slightly naive, or ignorant, but can't we cap inflation? I.e. print more money, and say to firms "Dont increase your price" and enforce some sort of law. What would be the repercussions of this?
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    (Original post by Alex-Torres)
    Tnis may sound slightly naive, or ignorant, but can't we cap inflation? I.e. print more money, and say to firms "Dont increase your price" and enforce some sort of law. What would be the repercussions of this?
    Wouldn't a simple response be firms will rise/decrease their prices accordingly on their own basis, also if you do, firms that work around prices are bound to suffer tremendously.

    If you say Don't, basically firms will rise/decrease still, perhaps in secret causing more problems
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    (Original post by Alex-Torres)
    Tnis may sound slightly naive, or ignorant, but can't we cap inflation? I.e. print more money, and say to firms "Dont increase your price" and enforce some sort of law. What would be the repercussions of this?
    Print more money? Prices will rise..

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    Do you remember when Freddo's used to be 15pence each?
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    This would not be possible as the pound will be drastically depreciated in terms of exchange rates meaning that international trade would be very expensive. The government would never do it.


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    (Original post by JOR2010)
    Print more money? Prices will rise..

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    The price itself will rise but the value will stay the same.


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    It is not in firms best interests to do this, it would reduce profits, if a single firm didn't comply, then they could easily undercut the competitors and monopolise the market, no firm wants to risk that. Furthermore, the ECB hardly has the best credibility, firms would be putting an awful lot of faith in them to pull this off, no firm is going to enjoy the risk.
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    (Original post by Bloxorus)
    The price itself will rise but the value will stay the same.


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    Are you trolling? Economic theory suggests strongly that printing more money will cause an increase in the price level. Which planet are you from?!
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    (Original post by Alex-Torres)
    Tnis may sound slightly naive, or ignorant, but can't we cap inflation? I.e. print more money, and say to firms "Dont increase your price" and enforce some sort of law. What would be the repercussions of this?
    You would just get shortages, firms would run out of goods.

    When people have loads of cash they will demand more goods. When the price does not rise to signal to firms that there are potential gains from producing more, you won't get an increase in the supply. So you will end up with things running out.
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    (Original post by JOR2010)
    Are you trolling? Economic theory suggests strongly that printing more money will cause an increase in the price level. Which planet are you from?!
    he says the price will rise
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    (Original post by cleveradam)
    Do you remember when Freddo's used to be 15pence each?
    Bahahahahahahha. I remember when they were 10p, and then after that they were 12p for a while
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    Inflation is a natural occurrence than cannot be helped, their are many policy's put in place to ensure it stays at 2% Simples.


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    (Original post by JOR2010)
    Are you trolling? Economic theory suggests strongly that printing more money will cause an increase in the price level. Which planet are you from?!
    I said the price level would rise but the value i.e in terms of other currency. would stay the same...???


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    (Original post by MagicNMedicine)
    You would just get shortages, firms would run out of goods.

    When people have loads of cash they will demand more goods. When the price does not rise to signal to firms that there are potential gains from producing more, you won't get an increase in the supply. So you will end up with things running out.
    Thanks, this is the sort of reply I was looking for.
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    (Original post by Bloxorus)
    I said the price level would rise but the value i.e in terms of other currency. would stay the same...???


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    No, you just edited your post. Silly you.
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    (Original post by cleveradam)
    Do you remember when Freddo's used to be 15pence each?
    OK now I know I'm old. It's 10p!

    Also, they used to be much, much chunkier. In fact, I think in many ways the day the Freddo got thinner is the day life started to go downhill.

    Just found a picture of the wrapper. Jesus, in this day and age the design looks like something from the time of the dinosaurs.

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    Freddos should have stayed at 10p! I also feel very old saying this ;( Haven't bothered with them ever since they raised it to 15p!


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    If you are telling firms to cap their prices, then you may as well just run them collectively and turn it into a planned economy...
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    (Original post by Alex-Torres)
    Thanks, this is the sort of reply I was looking for.
    One other point. Whilst it is not sensible for the government to intervene by placing price restrictions on competitive markets, it can be sensible in markets where companies have a lot of market power. If there are only a few firms operating in an industry that has high barriers for entry so they don't face much competition, they can charge large mark ups, which means the prices they charge are well above their costs of production (if it was a fully competitive market with new firms being able to come in and challenge them easily, then the market price would get driven down to the level of production costs so firms just break even and any firm that is less efficient would go out of business).

    If there is a large mark up being charged, then government can cap the price, and have benefits to society, as long as the price cap does not fall below the firm's costs of production (in which case it just won't produce). It just means the firm makes smaller profits, but it still makes profits. This kind of price capping redistributes the benefit from owners of firms to consumers, ie less excess profit for firm owners, lower prices for consumers.
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    I imagine that some of this excess would no doubt trickle through the system and lead to cost-push inflation which would be astronomically bad for any company that obeyed the rule and did not raise prices.

    Inflation is a tricky beast, it filters through into everything.
 
 
 
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