ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -RBI Limitations: The Indian Government 4 The Reserve Bank has the right to print currency up to 10, 000 rupee notes. However, if the Reserve Bank wants to print anything higher, the government must amend the Reserve Bank of India Act.

Detailed explanation-2: -If more money is printed, consumers could demand more things, but if businesses only produce the same amount of goods, they will raise prices in response. In a simple scenario, printing money will only lead to inflation. A nation must produce and sell more goods and services if it wants to get richer.

Detailed explanation-3: -Governments often turn to printing money in order to increase the amount of cash or liquidity in the economy. The central bank buys bonds or other assets from the private sectors in exchange for reserves and account balances to print more money.

Detailed explanation-4: -Suppose the government decides to print more money to cater to the rise in demand for its currency in the economy. This action creates a spiral-like situation. The demand increases again, supply is the same, and thus the prices also shoot up. It results in inflation in the economy.