ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Money owed must be paid on time.
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The government must control the money supply.
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Banks must hold sufficient gold to cover any paper money they give out.
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Customers with checking accounts cannot earn interest on those accounts.
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Detailed explanation-1: -A fiat currency functions well when the public has enough confidence in the currency’s ability to act as a storage medium for purchasing power. Also, it must be backed by the full credit of the government that gives a decree and prints it as a legal tender for financial transactions.
Detailed explanation-2: -What condition is necessary for a fiat money system to work? The money supply must be controlled (in US the Federal Reserve controls it).
Detailed explanation-3: -Characteristics of Fiat Currency To be considered fiat currency, the medium must be durable, portable, divisible, uniform, and controllable in supply.
Detailed explanation-4: -The most important element to the successful implementation of fiat money is a regulation board, like the government, which oversees the production and distribution of the currency. Without a regulation board, fiat money has no value.
Detailed explanation-5: -Fiat money is a government-issued currency that is not backed by a commodity such as gold. Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the U.S. dollar, are fiat currencies.