Final answer:
Fiat currency has advantages such as flexible monetary policy and convenience, but it can also lead to inflation and dependence on government stability.
Step-by-step explanation:
Fiat currency has two main advantages: Flexible Monetary Policy: Since fiat currency is not backed by a commodity, governments have the ability to manipulate the money supply and interest rates to manage economic conditions. This allows for greater flexibility in responding to economic crises and promoting growth. Convenience: Fiat currency is widely accepted as legal tender, making it easy to conduct transactions, both domestically and internationally. However, there are also two main disadvantages to fiat currency: Inflation: The flexibility of fiat currency can lead to inflation if governments print too much money, reducing its value over time. Dependence on Government and Stability: The value of fiat currency depends on government stability and public trust. If people lose confidence in the government or the currency, the value can plummet, causing economic instability.