What is a key risk when governments print too much inconvertible fiat money?
A. Scarcity of coins
B. Increased use of barter
C. Inflation
D. Loss of gold reserves
Answer (2)
The correct answer is letter C. InflationPrinting too much fiat money causes inflation, where prices go up because money becomes less valuable. For example, in post-WW1 Germany, people needed baskets of money to buy bread. The Philippines also experienced inflation during the 1970s and early 1980s when prices of basic goods kept rising due to mismanaged money supply.
C. InflationWhen a government prints too much inconvertible fiat money—money not backed by a physical commodity like gold—it increases the money supply without a corresponding increase in goods and services. This excess money reduces the currency’s value, causing prices to rise across the economy, which is known as inflation.
