Question

The government of West Tarragon declared the lowest unit of its currency to be redundant from the next quarter. The polka, which is the lowest denomination of the currency in West Tarragon, is a copper coin that has been in circilation for the last 40 years. The government justified its decision by saying that the purchasing power of the polka has dwindled substaintially over time. Jenny Merchant, a journalist, claims that this move will adversly affect the average consumer by pushing up the price level.

Which of the following, if true, will support the government's decision to take the polka out of circulation?
A. The polka is the second coin that has been taken out of circulation by the government in the last ten years
B. The face value of the coin is much lower than the intrinsic value of the coin
C. A neighboring country recently adopted West Tarragon's currency as its official currency
D. The currency notes and coins in circulation comprise 32 percent of the total money supply in West Tarragon
E. Retailers in West Tarragon cannot charge a price higher than the maximum retail price suggested by manufacturers.

Answer 1

B) The face value of the coin is much lower than the intrinsic value of the coin

Step-by-step explanation:

The face value of any coin is the value given to it by the government that issues it. For example the face value of a dime is 10 cents.

The intrinsic value of the coin is the melt value of the coin, or the value of the metals needed to manufacture the coin. For example a modern US penny has an intrinsic value of approximately 1 cent but older pennies have a value of 2.5 cents because of the larger proportion of zinc used to manufacture them.

In West Tarragon's case the melt cost of the coins was much higher than the actual purchasing power of the coins, so many people might begin to melt the coins to earn some profit (although melting coins is illegal, it is very difficult to control).