Question 1

Which of these is the least desirable characteristic of gold:&#10;A) It does not corrode&#10;B) It can be alloyed with other metals&#10;C) It is scarce&#10;D) Bars of it are heavy

Accepted Answer

Gold's heaviness makes it less convenient to handle and transport compared to other forms of wealth or currency.

Question 2

Gold as an investment:&#10;A) Produces little-to-no return&#10;B) Yields high returns&#10;C) Pays high dividends&#10;D) Has a higher average return than stocks

Accepted Answer

Gold does not produce returns through dividends or interest; its investment value comes from its price appreciation over time. Unlike stocks or bonds, gold does not pay dividends or interest, which are typical sources of investment returns.

Question 3

Which of the following is the least important factor that can make gold serve as a form of money:&#10;A) It can be a medium of exchange&#10;B) It can be a store of value&#10;C) It is durable&#10;D) It can be a unit of account

Accepted Answer

Gold's durability is less about its function as money and more about its physical properties. While durability contributes to gold's ability to serve as a store of value, its role as a medium of exchange, a unit of account, and its intrinsic value are more directly related to its function as money.

Question 4

A gold-based commodity money prevents:&#10;A) The central bank from independently pursuing expansionary monetary policy&#10;B) Recessions&#10;C) Confidence from falling&#10;D) Countries from erecting trade barriers with one another

Accepted Answer

A gold-based commodity money system limits the central bank's ability to pursue expansionary monetary policy because the money supply is tied to the amount of gold the country possesses. Expansionary policies often require the central bank to increase the money supply, which is difficult to do in a gold standard system without acquiring more gold.

Question 5

A gold standard is:&#10;A) A political system&#10;B) A system of floating exchange rate&#10;C) A system of fixed exchange rates&#10;D) A system of no international trade

Accepted Answer

The gold standard is a system of fixed exchange rates where the value of a currency is directly linked to a specific amount of gold, providing a stable and predictable exchange rate among participating countries.

Question 6

Which of the following is the factor that least prevents us from returning to a gold standard:&#10;A) Speculative attacks against exchange rates&#10;B) Lack of confidence in gold&#10;C) An insufficient stock of gold&#10;D) A desire to maintain autonomous monetary policy

Accepted Answer

Lack of confidence in gold is the least significant factor preventing a return to the gold standard. The primary concerns are speculative attacks, the limited quantity of gold, and the desire for autonomous monetary policy, which allows governments more flexibility in managing their economies. Confidence in gold as a store of value remains relatively high, especially in times of economic uncertainty.

Question 7

The most common solution to a speculative attack against a fixed exchange rate is to:&#10;A) Borrow money from other countries&#10;B) Reduce capital controls&#10;C) Appoint new governors of the central bank&#10;D) Abandon the fixed exchange rate

Accepted Answer

Abandoning the fixed exchange rate is often the most viable solution to stop a speculative attack, as it allows the currency to float and find its market value, relieving pressure on foreign reserves.

Question 8

In the face of expected depreciation of a fixed exchange rate, the central bank must:&#10;A) Lower interest rates&#10;B) Raise interest rates&#10;C) Expand the monetary base&#10;D) Raise minimum reserve requirements

Accepted Answer

To defend a fixed exchange rate and counteract expected depreciation, a central bank typically raises interest rates. This makes domestic assets more attractive to investors, increasing demand for the currency and helping to maintain its value.

Question 9

The price of gold is primarily driven by:&#10;A) Confidence in the ruling government of a nation&#10;B) How the stock market is performing&#10;C) Supply and demand&#10;D) Markets' expectation of a recession

Accepted Answer

The price of gold is primarily driven by supply and demand, like most commodities. Factors such as mining production, recycling, and consumer demand directly influence its price. Other choices, while they can affect investor sentiment and indirectly influence gold prices, do not drive the price of gold as directly as supply and demand do.

Deck 11: Gold