Question

Question 1:
When Guyana was a Dutch colony, it used the guilder (Dutch currency). The guilder was directly redeemable for gold. This is an example of what kind of money?
a) Fiat money
b) Representative (commodity-backed) money
c) Commodity money
d) Barter

Question 2:
Just before Guyana allowed its exchange rate to float in 1991, inflation skyrocketed. In anticipation of this inflation, what happened in the money market?

Money demand _____, causing interest rates to _____.
a) fell; rise
b) fell; fall
c) rose; fall
d) rose; rise

Question 3:
Guyana's federal budget deficit increased from 2017 to 2018. This put _____ pressure on interest rates. However, the Bank of Guyana intervened to keep the interest rate stable at 5%. In order to do this, the Bank of Guyana must have had to _____ government securities.
a) downward; sell
b) downward; buy
c) upward; sell
d) upward; buy

Answer 1

Answer
1. b) Representative (commodity-backed) money

Its a commodity backed money and not commodity money. The Guilder is redeemable by the dutch government when the currency is presented to the apex bank

2 b) fell; fall

The anticipation for the increase in the inflation lead the population to convert Guyana's currency to some form of other asset. This lead to an increase in the money supply and decreased the interest rates.

3c) upward; sell
Budgets deficits lead to increase in interest rates , to compabt this the money supply must be increased, this is done by selling bonds.

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