Illustrate what are the dangers of doing

Reference no: EM1339348

The Banking System

I could really use some help and guidance with these questions.

1. An economy can be stimulated by printing more money. What are the dangers of doing that? Inflation can be decreased by reducing the money supply. What is the potential downside?

2. The only thing backing up a nation's currency is faith in the government issuing it. If this is so, what should governments do to maintain a stable currency? What actions would undermine a currency?

3. A country that has never had its own currency has formed a central bank and put you in charge of developing money. It needs to perform the necessary functions of any good currency efficiently (i.e., being a medium of exchange, a store of value, and a unit of account). Since your country is interested in trading with other members of the global economy, other nations must have faith in its fitness and the currency exchange markets must be willing to accept it.

Reference no: EM1339348

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