Chapter 23, Problem 3MCQ

To determine

The correct option that refers to the type of money a dollar is.

Answer to Problem 3MCQ

Option e is correct.

Explanation of Solution

Explanation for correct option:

e.

Fiat money is a type of money whose value is derived from the official status. Dollar is the currency whose value is decided by the government through stamping. Therefore, option e is correct.

Explanation for incorrect options:

a.

Money backed by silver falls under the category of commodity backed money. It has intrinsic value which is derived from other uses. Therefore, option a is incorrect.

b.

Money backed by gold and silver falls under the category of commodity backed money. It has intrinsic value which is derived from other uses. Therefore, option b is incorrect.

c.

Commodity backed money is different from fiat money where its value is derived from other uses. Dollar is the currency printed by officials whose authenticity or value is derived from its official status. Therefore, option c is incorrect.

d.

Commodity money was used in historic period when exchange of items takes place. This was also referred as barter system where one commodity has been exchanged for another commodity. Therefore, option d is incorrect.

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.