2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has (some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would ( increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept them willingly from people believed trustworthy. The purchasing power of money is ( directly, inversely ) related to the price level. The Board of Governors of the Federal Reserve System (the Fed) is responsible for managing the United States' money supply so that money retains its purchasing power.
2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has (some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would ( increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept them willingly from people believed trustworthy. The purchasing power of money is ( directly, inversely ) related to the price level. The Board of Governors of the Federal Reserve System (the Fed) is responsible for managing the United States' money supply so that money retains its purchasing power.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Money Growth And Inflation
Section: Chapter Questions
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Transcribed Image Text:2. What “backs" the money supply in the United States? What determines the value (domestic
purchasing power) of money? How does the purchasing power of money relate to the price level?
Who in the United States is responsible for maintaining money's purchasing power?
There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has
( some, no ) intrinsic value, has value only because people are willing to accept it in exchange for
goods and services, including their labor services as employees. And people are willing to accept
paper as money because they know that everyone else is also willing to do so.
If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the
acceptability of paper money would (increase, diminish ). People would start to worry about
whether the banknotes would be worth much after they received them. Checks are part of the
money supply and ( are, are not) legal tender, but people accept them willingly from people
believed trustworthy.
The purchasing power of money is ( directly, inversely ) related to the price level. The Board of
Governors of the Federal Reserve System (the Fed) is responsible for managing the United
States' money supply so that money retains its purchasing power.
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