Which of the following is true about the quantity of money in the U.S. economy? (A)It is equal to the amount of cash in circulation (B)It is much greater than the amount of cash in circulation (C)It is equal to the value of the government's gold reserves (D)It is equal to the total amount of income
my answer - (B); gold reserves were abandoned by president Nixon in 1971 so (C) ruled out; not sure about others.
HELP!!!
What about the amount in bank accounts? Shouldn't that be added to the amount of cash in circulation? After all, it is available to buy things. Oh, you did say B. Correct.
To determine which statement is true about the quantity of money in the U.S. economy, let's break down and analyze each option:
(A) It is equal to the amount of cash in circulation:
To assess whether this statement is true, we need to understand that money supply in an economy comprises not only physical cash but also other forms of money like checking account balances and savings deposits. Therefore, the quantity of money is not limited to the amount of cash in circulation, so option (A) is not correct.
(B) It is much greater than the amount of cash in circulation:
This option implies that the quantity of money in the U.S. economy is more than the amount of cash in circulation. This is true because money supply includes not just physical cash but also various types of deposits held by individuals, businesses, and financial institutions. So, option (B) is accurate, and you were correct in choosing it.
(C) It is equal to the value of the government's gold reserves:
As you mentioned, this option is not correct because the U.S. government abandoned the gold standard in 1971. Since then, the quantity of money in the economy has been determined by factors such as monetary policy and the banking system, not the value of gold reserves.
(D) It is equal to the total amount of income:
The quantity of money in an economy is not directly tied to the total amount of income. While income is a factor that influences the quantity of money through various channels (such as spending and saving behavior), it does not represent a one-to-one relationship. Therefore, option (D) is not accurate.
In conclusion, the correct answer is (B) - the quantity of money in the U.S. economy is much greater than the amount of cash in circulation.