Question

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

The old currency is more valuable than the new currency.
The new currency is much more liquid than the old currency.
Too much currency in an economic system will cause inflation.
Too much currency in an economic system will create artificial wealth.

Answer 1

Correct answer: Too much currency in an economic system will cause inflation.

Explanation: If old notes and new notes circulate together without withdrawing the old ones, the total money supply would rise (people would effectively hold both), which can drive up prices and reduce the currency’s purchasing power. Other reasons for withdrawing old currency (not listed) include preventing confusion, removing insecure or damaged notes, and updating security features. The other options are incorrect: the old currency isn't inherently more valuable than the new, greater liquidity isn't a reason to withdraw old notes, and "artificial wealth" is just another way of describing inflationary effects but is less precise.