Assume that the US is an isolated territory, a separate planet. Assume that every dollar is a gold coin of one gram. And there is no silver in the US. Assume that all gold has been mined and melted into gold coins. That is, no more gold coins are being added, nor gold is being used for any other purpose. Assume that the year is 1600 AD. Production starts rising. Then industrial Revolution happens production rises even more, then oil age, then computer Revolution. Production is US $18 trillion. What will be the rise in the value of one dollar, that is one gram gold coin? Assume that the coin that was able to purchase x gram wheat will now purchase 1000x gram wheat. Because wheat production has risen 1000 times. That is, if currency, the medium of exchange, is kept constant in amount, but productivity, and hence total production rises, the value of currency, that is, its purchasing power will continue to rise. Now, suppose there is another planet, planet of lazy souls, India. Assume all above assumptions, except that metal is silver, and the year is same 1600 AD. And there is no gold in India. Assume that exchange rate in 1600 AD was one gram gold =one gram silver. And one gram silver in India also buys x gram wheat. Assume that Indians do not increase production, instead they press NOTA all these years. What will be the exchange rate in 2018? Since in India silver will still buy x gram wheat only, exchange rate will be one gram gold=1000 gram silver.
Why Dollar Is Rising Against Rupee
Why Dollar Is Rising Against Rupee
Why Dollar Is Rising Against Rupee
Assume that the US is an isolated territory, a separate planet. Assume that every dollar is a gold coin of one gram. And there is no silver in the US. Assume that all gold has been mined and melted into gold coins. That is, no more gold coins are being added, nor gold is being used for any other purpose. Assume that the year is 1600 AD. Production starts rising. Then industrial Revolution happens production rises even more, then oil age, then computer Revolution. Production is US $18 trillion. What will be the rise in the value of one dollar, that is one gram gold coin? Assume that the coin that was able to purchase x gram wheat will now purchase 1000x gram wheat. Because wheat production has risen 1000 times. That is, if currency, the medium of exchange, is kept constant in amount, but productivity, and hence total production rises, the value of currency, that is, its purchasing power will continue to rise. Now, suppose there is another planet, planet of lazy souls, India. Assume all above assumptions, except that metal is silver, and the year is same 1600 AD. And there is no gold in India. Assume that exchange rate in 1600 AD was one gram gold =one gram silver. And one gram silver in India also buys x gram wheat. Assume that Indians do not increase production, instead they press NOTA all these years. What will be the exchange rate in 2018? Since in India silver will still buy x gram wheat only, exchange rate will be one gram gold=1000 gram silver.