atisfactory store of value, money must have relatively stable value a direct rel
ID: 1113279 • Letter: A
Question
atisfactory store of value, money must have relatively stable value a direct relationship to national income. (a) a highly volatile value over time. dno interest payments for holding it. ( backing of a precious metal, typically gold. "Debasing" metal coinage had the (e) causing prices to fall in the econom changing relative prices. ncreasing the purchasing power of each coi ) ting a loss for the person issuing the coins. (d) crea (e) causing inflation. fractionally backed paper money system exists when claims against banks' reserves (a) have 100 percent backing in precious metals such as gold. (b) exceed the value of actual reserves. have a direct relationship to national income. d) have a fixed relationship to the quantity of coinage. (e) are less than the value of actual gold reserves. Today, paper money in Canada is issued by (a) all chartered banks. (b) the federal Department of Finance. (c) all commercial banks. (d) Canada's central bank (the Bank of Canada). (e) the Privy Council. All Canadian currency (coins and paper notes) is (a) fractionally backed by gold reserves. (b) totally backed by gold. (c) interest-bearing (d) fiat money. (e) backed by deposits in the commercial banks. Hyperinfl Which of the following ation is generally defined as inflation that exceeds 50 percent per month. situations describes a likely impact of hyperinflation? People lose confidence in the cu People lose confidence in the currency and become increasing reluctant to accept it. (a) rrency and try to spend it as soon as possibte. e rush to spend money further accelerates the increase in prices. People try holding foreign rather than domestic currency, causing the depreciation of the domestic currency All of the above. (c) Th (e)Explanation / Answer
1. Money must have relatively stable value, when the value in terms of prices is not stable, we would not have idea how much we can buy with the money after accumulating it.
2. Debasing resulted in producing extra coins added with inexpensive metals reducing the quality of the coin. The government was able to pay off debts with extra coins, but this led increase in demand and prices. Further leading to increase in inflation. Answer is E.
3. A fractionally backed paper money system exists when the claims against the bank reserves are fully redeemable in the form of gold. This system came into existence by issuing notes in lieu of Gold stored in a bank, with a promise to pay back Gold to the bearer of the note as and when required.
4. Currency notes in canada are issued by the Bank of Canada which is Canada"s Central Bank.
5.Canada have negligible Gold reserves and its currency is not backed by Gold reserves. It relies on the faith of people in valuing the currency making it a fiat currency.
6. All of the above, when people lose confidence in money and its value, they try to buy goods which have value. Accepting the low value currency is done with a premium in the form of high prices, leading to increase in prices. Domestic currency is exchanged for foreign currency which has more value.
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