Not really anything to elaborate on beyond the title.
What happens economically if a country prints lots of cash but bans any price increase?
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1It is not at all a simple matter to "ban price increases" in a market economy. Britain's Labour governments of the 60s and 70s attempted to run Prices and Incomes Policies which at different times attempted to control both wages and retail prices. The machinery could only be applied in a less-than-precise manner against the biggest unions and the largest companies. There were always ways in which increases could be put through without notice and it had limited effect in holding back inflation. The arrival of Thatcher in 1978 saw a complete switch to monetarist economics. – WS2 Dec 11 '16 at 19:48
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This is probably better for economics SE. To answer your question, what would you do if the government made it illegal to pay anyone more than $6 per hour. Would you continue working at your job? Welcome to price controls. – Tyler Durden Dec 12 '16 at 14:20
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Shortages
Countries that have actually tried banning price increases have faced shortages. For example, the 1973 Oil Crisis in the United States. Nixon tried to prevent inflation with price controls and rationing. Long lines developed at gas stations. These price controls also blocked local increases in supply, as they couldn't hope to make back what they'd spend finding new sources. The US had similar problems with price controls during World War II.
The basic problem is that the constrained prices don't allow for necessary adjustments. Also, note that foreign prices can't be constrained. So the supply of imports falls, further exacerbating domestic issues. People may prefer to export, getting paid in more valuable currencies.
Evasion
Black markets may also arise. Grey markets like barter can allow people to get what they need. Goods for goods is harder to track and less subject to inflationary pressures. Either way, these make shortages in more normal markets worse while only mitigating the shortages on an individual basis.
Farmers may keep meat animals longer rather than exchanging them for cash. Why exchange a goat or cow for money that you can't spend? So long as there are enough fields to keep the animals alive, you can save on feed. Or trade crops for meat. Let meat or dairy animals eat crops. Replant your own crops as seed next year. All those steps save money and contribute to the shortages.
Sellers can create new products with higher prices that just happen to have the same contents. For example, release a fancy, collector's version of a product which happens to be on the shelves while the regular version isn't. Release smaller jars at only a small discount from the full-size version. Release larger jars at a much higher price. Sell a combination of items at a higher price than the total of their official prices.
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Grey markets might also use foreign currencies as replacement currencies when the local currency gets useless due to government-imposed price fixing. For example, classified ads in East Germany frequently had offers for various goods in exchange for "blue tiles". That was a code-word for the blue West-German 100 DM banknotes. – Philipp♦ Dec 12 '16 at 9:29
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You get black markets, from Wiki
A black market, underground economy, or shadow economy is a clandestine market or transaction which has some aspect of illegality or is characterized by some form of noncompliant behavior with an institutional set of rules.[1] If the rule defines the set of goods and services whose production and distribution is prohibited by law, non-compliance with the rule constitutes a black market trade since the transaction itself is illegal. Parties engaging in the production or distribution of prohibited goods and services are members of the illegal economy. Examples include the drug trade, prostitution, illegal currency transactions and human trafficking. Violations of the tax code involving income tax evasion constitutes membership in the unreported economy.[2][3] Because tax evasion or participation in a black market activity is illegal, participants will attempt to hide their behavior from the government or regulatory authority.[4] Cash usage is the preferred medium of exchange in illegal transactions since cash usage does not leave a footprint.[5] Common motives for operating in black markets are to trade contraband, avoid taxes and regulations, or skirt price controls or rationing. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and services, e.g. "the black market in bush meat".
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It seems like this answer ought to include a link to the source of the quoted text. – phoog Dec 12 '16 at 15:34
