Chapter 23, Problem 2FRQ

a.

To determine

The driver of US dollar value.

Explanation of Solution

The country U’s dollar derives its value from its officials or country U’s government. It is the currency that is used by people for making transactions.

Economics Concept Introduction

Money: Money is the medium of exchange through which goods and services can be traded. It can perform three main functions i.e. medium of exchange, store of value, and unit of account.

b.

To determine

The term that is used to define the type of money used in country U.

Explanation of Solution

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. In other words, it is one of the types of money which is used in the country U in the form of the country U dollar.

Economics Concept Introduction

Money: Money is the medium of exchange through which goods and services can be traded. It can perform three main functions i.e. medium of exchange, store of value, and unit of account.

c.

To determine

The other two types of money that were used in the past.

Explanation of Solution

In the past, commodity money and commodity-backed money were used. Commodity-backed money is one type of money where the promise is made by the party to convert it into some valuable aspect without the actual exchange of commodities. Commodity money is a currency whose value is derived from commodities and the actual transfer of commodities takes place while transacting.

Economics Concept Introduction

Money: Money is the medium of exchange through which goods and services can be traded. It can perform three main functions i.e. medium of exchange, store of value, and unit of account.