Question : Which of the following statements is incorrect?
Option 1: Fiat money is issued without any backing of an equivalent amount of gold or silver
Option 2: The money Multiplier is the ratio of the money supply to the reserve money
Option 3: In Time Deposits, money can be withdrawn only after maturity or with a penalty before maturity
Option 4: Vault cash is also a part of the money supply
Correct Answer: Vault cash is also a part of the money supply
Solution : The correct statement is Vault cash is also a part of the money supply.
Vault cash is included in what is referred to as high-powered money, or the monetary base, even though it is not a part of the M1 money supply. The currency owned by the general public outside of banks, bank vault cash, and bank deposits with the Federal Reserve make up the monetary base.
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