Question

9. What probably happened that a government decided it needed to print the below banknote? (Write a minimum of 100 words in your answer)

Answer 1

As all the transactions are carried out through bank accounts the government doesn't need to print money .It may be either its own bank (the central bank) or the commercial banks. The government will not send you banknotes even for tax refunds, instead it is through a cheque.

However, still require banknotes are required by banks inorder to satisfy the cash withdrawals of their customers and so the banks banknotes are bought from the central bank, banknotes which have been printed in as according to the demand.Demand for cash keeps on changing from month to month and also the amount printed does changes too. Also the  banks have been trying to reduce their costs for years by ordering fewer banknotes instead they have introduced cheques, credit cards and debit cards in order to lower their customers need for cash. Because of this,, they need less cash per customer than they used to. But still the the government only prints what the banks will be ready to buy from it.More money supply is needed,as the economy expands. If the government decides to stop printing currency and the economy expands, there will be lesser currency for the increasing economic output which can cause deflation which may lower growth of the economy.