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State with the reasons whether you agree or disagree with the following statements:

There are no disadvantages to paper money.

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No, I do not agree with the statement. 

Although paper money has many advantages and it has economized the use of precious metals it suffers from the following disadvantages:

  • The government may over the issue when there is a deficit in the budget and this may lead to inflation. 
  • It is less durable as compared to metallic money. 
  • It can be circulated only in the domestic economy, it is not useful for international trade.

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