1. The crucial difference between a monetary system based on the convertible currency (gold standard) model and a fiat currency monetary is that under the former system:
Answer: The national government had to issue debt to cover spending above taxation.
1. Bank reserves are maintained to ensure that all the cheques written every day clear when presented. If a bank doesn't have enough reserves then cheques drawn against it will bounce.
Answer: False
3. Assume inflation is stable, there is excess productive capacity, and the central bank maintains its current monetary policy setting. Iff government spending increases by $X dollars and private investment and exports are unchanged then nominal income will continue growing until the sum of the changes in taxation revenue, import spending and household saving equals $X dollars.