Quiz #216

• 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:
• Excessive national government spending led to inflation.
• The national government had to issue debt to cover spending above taxation.
• The national government could not use net spending to achieve full employment.
• 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.
• True
• 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.
• True
• False

Quiz #216 answers

• 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.

Answer: True