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# Macroeconomics Study Set 43

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## Quiz 14 : A: Money, Banking, and Money Creation

Some government bonds can be redeemed for currency or a cheque at banks.Why, then, isn't it universally agreed that government bonds are part of the money supply?
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The question literally answers itself.These assets must be exchanged for currency or a cheque (which is money by definition) before they can be used in exchange for goods and services.Since they must be exchanged for currency or a cheque first, bonds are one step removed from being spendable as money.

What is fiat money?
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Fiat money is money that is declared to be legal tender by the government and is backed by the government's ability to keep its value stable rather than by some precious metal.

Why is money considered to be debt?
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The major parts of the money supply are currency and demand deposits.These items are debts, or promises to pay.Paper money is the circulating debt of the Bank of Canada.Demand deposits are debts of chartered banks.Neither currency nor demand deposits have any intrinsic value.They are simply circulating paper to which people must attach value.

Why is the intrinsic value of token money less than its face value?
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Provide three key reasons why money has value.
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Suppose depositors at chartered banks transfer $10 billion from their savings deposits to their demand deposits.What impact does this have on M1, M2, and M2+? Essay Answer: When would money that is declared legal tender be worthless? Essay Answer: Determine the purchasing power of$1 at each of the price levels indicated in the table and enter in the spaces provided.
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What is the difference between the M2 and M2+ definitions of the money supply?
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Are credit cards money? Explain.
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What are the three functions that a commodity must fulfill to be useful as money?
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Money is what money does.Explain.
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What is a chartered bank (in Canada)?
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Use the figures in the table below to answer the following questions. (a) What is the value of M1? (b) What is the value of M2? (c) What is the value of M2+? (d) What is the value of M2++?
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In Douglas Adams' The Restaurant at the End of the Universe, the Golgafrinchans' management consultant decided to use leaves (from trees) as legal tender (i.e., as money).What is the problem with this plan?
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Use the figures in the table below to answer the following questions. (a) What is the value of M1? (b) What is the value of M2? (c) What is the value of M2+? (d) What is the value of M2++?
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