Question

Fiat money has value because it

A) Can be manufactured at will by the issuing government.
B) Has intrinsic value equal to its face value.
C) Is fully backed by gold at a fixed ratio.
D) Is only tionally backed by gold.
E) Is generally accepted

Answer 1

Fiat money has value because it is generally accepted as a medium of exchange, sanctioned by a government's legal tender laws, not because it is backed by physical commodities or intrinsic worth(option e).

Step-by-step explanation:

Fiat money has value not because it is backed by a physical commodity or because of its intrinsic value, but rather because it is generally accepted as a medium of exchange due to government decree. For instance, the message emblazoned on United States' paper money, "THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE," signifies that by law, you can settle any debt using this currency—its worth is underpinned by collective faith and credit in the economy.

Given the options provided in the question, the correct answer is that fiat money has value because (E) it is generally accepted as a medium of exchange. As economies expanded globally, the impracticality of commodity money led to the adoption of fiat currencies. Unlike commodity money, which is valued for other uses (e.g., gold used in electronics and jewelry), fiat money derives its usefulness purely through universal acceptance.