5.2 PRICES

Dear no-followers,  we know already how the ECB articulates monetary policies increasing and decreasing interest rates.

We have also seen why the ECB (and any Central Bank) chases sticky prices: they do not want to suffer hyperinflations, which are an economic event that I don't desire for the creator of the hug between the corner peak of the furniture and the pinky toe. 

So, now... why is there people who are earning a lot of money in Frankfurt?

We have already analyzed the decreasing of interest rate better off the whole economy 

(4.1). If the Central Bank prints a lot of money i.e. increases the currency, prices have increases. But to join this two concepts we need to know more about this proccess.

Let imagine a recesion economy, so the investment level is low, consumption level is slight as well... well, the same than right now.

ECB has guts and come together: they decide to lower interest rates, how? It increases the currency. It prints bill and this way, there's more money thus money worth less...

Why diamonds are expensives? There are few.

Why paper is cheap? there are -increasingly less- many wood in the world.

 Do you watch it? If currency in our hands increases (okey, not our, rather bankers hands), money worth less. This means interest rate, the remuneration that is given for having our money, lowers!

ECB manage this way the interest rate: printing money and lowering "i".

Because of the drop of "i", investments increases (is cheaper borrowing money) and this makes companies larger, thus needing more employees, increasing employement...

Since there's more jobs, householders consumption increases so that, a dynamic movement is generated leading to an upgrowth of GDP. We are richer in our economy!

Does this dynamic stop somehow? If the baker realizes more people want her bread, based on the business vision which took him to open a bakery, realizes as well that increasing prices he will earn more.

 Multiplying this baker times every company who see how the economy works... what happens? Prices grow. This generalized price growing leads to smooth consumption, reduce investments and hire workers since everything is a bit more expensive.

To end up, look above and realize by your self how the ECB movement had consequences not expected beyond our first thoughts.

I don't want to bore you but, the opposite movement creates the opposite outcomes

I finish here and I'll shut up: the final relationship between the task and the objective of the ECB have been already shown. C'est fini

ANY QUESTION?? PLEASE COMMENT IF YOU GOT DOUBTS, SUGGESTIONS...