Question

What is not considered a characteristic of the money supply in the United States?
A)
America's fiat money is currently backed by gold deposits at the Federal
Reserve.
B)
The fact that America's currency is legal tender means that it must be
accepted in payment of debt.
C)
The greater the volume of transactions in the American economy, the
greater the economy's demand for money.
D)
The money supply is backed by nothing more than the government's ability
to keep the value of American money stable.

Answer 1

The monetary supply in the United States is based on fiat money which means that it is not true that A)  America's fiat money is currently backed by gold deposits at the Federal  Reserve.

The American dollar is a fiat currency which means that it is not backed by any sort of mineral deposits be it gold or silver. The gold deposits at the federal reserves are therefore not used to back the dollar.

The dollar is instead backed by the U.S. government and its policies which aim to keep the American economy stable.

The other options are wrong because:

• It is true that the USD being legal tender means it can be used to pay for debt.
• It is also true that the demand for money increases based on the volume of transactions in the economy.

In conclusion, the U.S. Dollar is not backed by the gold deposits in the Federal reserve but rather by the American government itself.

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