Chapter 5R, Problem 10MCQ

To determine

The correct option that defines the drivers of the fiat money’s value.

Answer to Problem 10MCQ

Option a is correct.

Explanation of Solution

Explanation for the correct option:

a.

Fiat money is the historical term that has been used by rulers. Government fiat is a type of money where value derives from its official status for payment purposes. Therefore, option a is correct.

Explanation for incorrect options:

b.

The medium of exchange is the function of money rather than its type. Therefore, option b is incorrect.

c.

Commodity-backed money is one type of money where the promise is made by the party to convert it into some valuable aspect. Therefore, option c is incorrect.

d.

Gold and silver are commodities that possess some intrinsic value. Therefore, option d is incorrect.

e.

Exchange rate refers to the rates at which the currency of one country is an exchanged with the currency of another country. Therefore, option e is incorrect.

Economics Concept Introduction

Characteristics of money: Main characteristics of money refer to the traits that money should possess which include durability, being portable, divisible, uniform, and acceptable, and has limited supply.

Fiat money: It is one of the types of money where the government can manage the money supply in the economy as its value is based on the official status.