Question

1. The money-multiplier process is based on the principle of fractional reserve banking. T/F

2. Contraction of the money supply can aggravate a recession. T/F

3. Fiat money has value because it

A.) is backed by gold B.) can be divided into smaller units C.) can be exchanged for precious metals at fixed price D.) can be used to buy goods and services E.) All of above

4.) One conceptual problem in assigning assets to M1, M2, and so on, is

A.) distinguishing money from near monies B.) the problem of measuring asset size C.) The different size of financial assets D.) The need to agree on a unit of account

Answer 1

1)- TRUE-The money-multiplier process is based on the principle of fractional reserve banking.

• Multiplier effect work in reserve
• It is define as change in income divided by change in spending

2)- TRUE -Contraction of the money supply can aggravate a recession.

• The money is carried out by central bank of country.
• Factor cause - Increase in rate of interest

3)-D can be used to buy goods and services.

Fait Money - it is the most modern currency paper including,

• US Doller
• The EURO
• Other global currancy

So fait money has value because it can be used to buy goods ans services.

4.) C) The Different size of financial assets.

• Financial assets considered to be money