The Money Mystery Ch: 11
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The Money Mystery Ch: 11

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@Tree Of Life Christian Academy

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Questions and Answers

In which type of economy is change described as revolutionary and unpredictable?

  • Traditional economy
  • Mixed economy
  • Government-controlled economy (correct)
  • Market-driven economy
  • What is a key characteristic of a free economy regarding the demand for money?

  • High levels of fiat money use
  • Low levels of panic during financial crises (correct)
  • Frequent government intervention
  • Instability in currency value
  • What lesson was learned by wealthy individuals and organizations from the 1980 crisis?

  • To invest more heavily in fiat currency
  • To focus on real estate investments
  • To secure long-term investments in government bonds
  • The inherent insecurity in a government-controlled economy (correct)
  • What does the term 'hot money' refer to in the context of modern finance?

    <p>Funds that can be quickly withdrawn during uncertainty</p> Signup and view all the answers

    Which economic event is cited as an example of how political decisions can profoundly affect the economy?

    <p>The 1987 stock market crash</p> Signup and view all the answers

    What contributes to the sense of urgency among investors in today's financial systems?

    <p>Frequent political changes and proposed new policies</p> Signup and view all the answers

    Historically, what is observed during periods of fiat monetary system instability?

    <p>Cash in the form of gold or silver retains stability</p> Signup and view all the answers

    Which historical measure led to a significant economic downturn during the 1930s?

    <p>The Smoot-Hawley tariffs</p> Signup and view all the answers

    What economic event caused a significant impact on the father's real estate business in the 1980s?

    <p>The rise of interest rates due to inflation</p> Signup and view all the answers

    What led to the panic in Argentina in the summer of 1985?

    <p>Freezing of prices proposed by politicians</p> Signup and view all the answers

    How did the Federal Reserve respond to the stock market crash of 1987?

    <p>By injecting money into the banking system</p> Signup and view all the answers

    What was the primary reason for the decline in money demand as mentioned in the content?

    <p>Panic in a government-controlled economy</p> Signup and view all the answers

    What did the events on the other side of the world exemplify regarding the impact on American families?

    <p>Global events could directly impact local businesses</p> Signup and view all the answers

    What was the concern of central bankers at the end of the decade mentioned?

    <p>The lessons learned from previous financial crises</p> Signup and view all the answers

    In what context did the buying of gold by central banks become significant in the late 1970s and 1980s?

    <p>In reaction to the inflationary surge</p> Signup and view all the answers

    Study Notes

    Free vs Government-Controlled Economy

    • Free economies evolve gradually and allow planning ahead
    • Government-controlled economies change rapidly and unpredictably, making planning difficult

    Fiat Money and Panic

    • People are less likely to panic in a free economy with gold or silver currency
    • People are more likely to panic in government-controlled economies where the amount of fiat money can be changed quickly.

    The Financial Hair-Trigger

    • Politicians and bureaucrats can make unexpected decisions that impact the economy
    • The world financial system is more sensitive to government decisions due to the "financial hair-trigger"
    • People are constantly alert and may pull out investments quickly if they sense a change in policy

    Examples of Financial Crises

    • The 1979 freeze, caused by political decisions, impacted the economy
    • The 1930 Smoot-Hawley tariffs worsened the Great Depression
    • The 1987 stock market crash triggered by the Fed's monetary policy
    • The 1980 crisis, caused by events in the Middle East, led to the rise of "hot money" - investments that are easily pulled out

    The Argentine Crisis (1985)

    • Rumors of price freezes and new currency in Argentina caused panic, leading to price increases and devaluation

    The 1987 Stock Market Crash

    • It triggered a worldwide panic
    • Only stopped by the Federal Reserve's promise to inject money into the banking system

    Central Banks and Gold

    • In the late 1970s, the IMF and the Carter administration tried to move away from gold, but central banks still prefer it
    • Central banks have bought gold in seven of the past nine years
    • This highlights the fear of instability and the preference for a safe haven asset

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    Description

    This quiz explores the differences between free economies and government-controlled economies. It focuses on aspects such as fiat money, financial crises, and the impact of political decisions on the economy. Test your understanding of how economic structures affect stability and planning.

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