93. Which of the following does not explain what backs the money supply in the United States?

A. It is backed by gold.

B. It is widely accepted in transactions.

C. It is designated "legal tender" by the federal government.

D. It is relatively scarce.

Question

93. Which of the following does not explain what backs the money supply in the United States?

A.     It is backed by gold.

B.     It is widely accepted in transactions.

C.     It is designated "legal tender" by the federal government.

D.     It is relatively scarce.

BlackTom AI · Accepted Answer

First, let’s restate the question and options to ensure clarity: The question asks which statement does not explain what backs the money supply in the United States.

Option A: It is backed by gold.
Option B: It is widely accepted in transactions.
Option C: It is designated "legal tender" by the federal government.
Option D: It is relatively scarce.

Now, evaluate each option in turn:

Option A: It is backed by gold.
This statement is incorrect as a description of what backs modern U.S. money. The United States uses fiat money, meaning currency is not backed by a physical commodity like gold. The gold standard was abandoned in 1933, and today money’s value comes from the government’s authority and general acceptance, not a gold reserve. Therefore, A does not explain the backing of the money supply and is the correct choice for this question.

Option B: It is widely accepted in transactions.
This is a real factor in what backs money. If currency is widely accepted for goods and services, it gains value and usefulness; people trust and use it, which supports the money’s role as a medium of exchange. While this doesn’t describe a legal or physical backing like gold, it explains why money has value and functions in the economy. So B is a valid explanation for backing the money supply.

Option C: It is designated "legal tender" by the federal government.
This is also a core explanation of backing. Legal tender status means the government requires that this currency be accepted for debts and payments, which gives money its authority and enforceable status. This designation is a fundamental reason money is used and accepted, contributing to backing the money supply.

Option D: It is relatively scarce.
Scarcity contributes to money’s value; if currency were excessive, its value could fall due to inflation. The central bank manages the money supply to balance scarcity with economic activity. While “scarcity” helps explain why money has value, it does not by itself constitute a backing mechanism in the same sense as legal tender status or broad acceptance. However, it still plays a role in the perceived value of money and can be part of the broader explanation of backing. In the context of the question, D is not as direct a backing mechanism as B or C, but it can be part of the overall rationale for money’s value.

In summary, option A is incorrect because gold backing does not explain the current backing of the U.S. money supply; the other options describe mechanisms that contribute to money’s acceptability and authority in practice. The distinctions hinge on fiat currency, legal tender status, and general acceptance rather than gold backing, which is why A does not explain the backing of the money supply while B, C, and (to an extent) D describe factors that do.

ECNM1115.32542.202530 Macroeconomics Spring 2025 Final

93. Which of the following does not explain what backs the money supply in the United States? A. It is backed by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the federal government. D. It is relatively scarce.

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