Isnin, Mei 04, 2009

A simple economy

Source: Good News From Indonesia

CP, a young student man, a loyal reader of GNFI from Singapore, and FJ, a young girl, loyal reader of GNFI from Hong Kong, repeatedly asked me some issues about economy. I am not really a good economist, i am a pragmatical guy, thinking simply, and a short-considering person, so sometimes i gave them short answer with an expectation that they'd easily understand. These are the Qs and As :

1. What makes economy grow ?
--> Confusing answer --> Google.
--> GNFI's answer --> Imagine a village with 100 population, with $100,000 money overall. They trade among themselves. After 10 years, population grows to 120 people. The money? The money remain the same, so virtually, people gets poorer when $100,000 is distributed to 120 people (before only to 100). This is a point where i can say that economy is shrinking.
To catch up with population, economy must grow ! By what ? By INJECTING money into the 120 population. We cannot simply print out money, we must CREATE money through :
1. Trading (make sure it's surplus)
2. Foreign investment
3. Grant from outside
4. Tourism (include medical, education)
5. Charity from outside

Only by attracting money from outside, then you can grow, richer, or at least remain stable in income.

2. Is it allowed to PRINT money?
Confusing answer --> Ask IMF.
GNFI's answer --> No if you dun have the reserve for back up.
But, since the $$$ is coming from those 5 sources, you can divert them into Rupiah by issuing new money without creating inflation.

3. Is saving money in bank is good?
Confusing answer --> Ask Alan Greenspan or Obama.
GNFI's answer --> if you save all your money, the spa center will close down, Bakwan seller will be bankrupt, food stall will also end. So, better if you spend your money by appropriate consumption, investment. In the long run, you'll get richer. Why? Coz more money ups for grabs.

More Qs and As will follow.

Farina's comment: Thanks for making economics easily understood! Saya berangan FJ yg dimaksudkan adalah saya,, asking questions about economics?

Who knows. :-)

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