Quiz #534

• 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.
• False
• True
• 2. The crucial difference between a monetary system based on the gold standard world 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.
• 3. When the national government's fiscal balance moves into deficit:
• One cannot conclude anything about the government's policy intentions.
• (a) and (b)
• It is a sign that the government is worried that unemployment is rising.
• It is a sign that the government is trying to stimulate the economy.

Quiz #534 answers

• 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

• 2. The crucial difference between a monetary system based on the gold standard world and a fiat currency monetary is that under the former system:

Answer: the national government had to issue debt to cover spending above taxation.

• 3. When the national government's fiscal balance moves into deficit:

Answer: One cannot conclude anything about the government's policy intentions.