Question

In: Economics

Which of the following is an example of what backs fiat money? bartering arrangements trust the...

Which of the following is an example of what backs fiat money?

bartering arrangements

trust the public has that it can be exchanged for services and goods

precious metals such as silver

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of

100 million

50 million

5 million

What is an example of a security?

Fiat money

Checking account

Credit cards

All over the globe commodities (e.g. corn, wheat, beans) are priced in United States dollars. This in economic terms, is an example of

flexible values.

store of value.

What will happen to the money supply if the Fed decreases the reserve requirement?

The money supply will decrease.

The money supply is unaffected by the reserve requirement.

The money supply will increase.

units of account.

Solutions

Expert Solution

1.B. trust the public has that it can be exchanged for services and goods

Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.

2. B. 50 million

The value of multiplier is 1/reserve ratio, that is, 1/10%= 10.

Total change in money supply= 10 x 5 million= 50 million.

3.B. checking account

A security is a financial instrument that holds some value, such as a stock, bond or option.

4. c. unit of account

This is because, if commodities would all be posted in different currencies, it would be increasingly complex to compare the value of corn to the value of wheat, for instance. Having all prices in USD helps players in the market compare the data and make informed decisions.

5. c. The money supply will increase.

If Fed decreases the reserve requirement it is expansionary monetary policy, it implies that banks can now lend more money. As a result, money supply increases.


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