Fiat money has value because ______.

Select all that apply.

Question

Fiat money has value because ______.

Select all that apply.

BlackTom AI · Accepted Answer

Question: Fiat money has value because ______. Select all that apply.

Option 1: it can be converted to gold at a fixed rate.
- This statement describes a gold standard, not fiat money. Fiat money derives value from government decree and trust, not from a fixed convertibility to gold. Therefore, this option is incorrect.

Option 2: people all agree that it has value.
- This captures a core idea behind fiat money: its value comes from widespread acceptance and trust in the currency’s usefulness for transactions and as a store of value. If people do not believe in it, its value collapses. This option is correct.

Option 3: it has intrinsic value.
- Fiat money typically has little to no intrinsic value; its value is not based on physical material's worth but on legal and social acceptance. Hence this statement is false.

Option 4: it can be converted to silver at a fixed rate.
- Similar to option 1, this describes a system with fixed convertibility to another commodity, which is not characteristic of fiat money. Thus, this option is incorrect.

Option 5: it can be used to settle any outstanding debt.
- In many economies, fiat money is legal tender and can be used to settle debts; this is a fundamental feature of fiat currencies. While there may be caveats in specific contracts, the general idea is correct. This option is correct.

Summary of evaluation:
- Correct: options 2 and 5.
- Incorrect: options 1, 3, and 4.

Understanding insight:
- The essential distinction for fiat money is that its value rests on collective acceptance and a legal framework, not on physical substance or fixed commodity convertibility. This explains why options invoking gold or silver convertibility or intrinsic material value are not appropriate explanations for fiat money’s value.

FA25 ECON 302 002 Midterm Exam #3 (Chapters 7-9): Sample Questions

Fiat money has value because ______. Select all that apply.

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