Question

Why must old currency be taken out of circulation when new currency is made

Answer 1

Answer:

the correct answer is “Too much currency in an economic system will cause inflation”

Explanation:

Inflation might be caused if there is more money that the economy in equilibrium is capable of deal with. If the FED creates new money, automatically they will announce that the old one will start being illegal, meaning it will be worthless and they will be just colorful papers. In this case, the money supply will be the same amount. But if the FED does not make it, more money in economy will lead to an increase of demand of goods, that eventually will translate to an increase of overall prices creating inflation.  

Answer 2

The whole amount of currency need to be the same.