Part 1Which of the following is a disadvantage of using fiat money LOADING... ?Part 2
A. Public authorities may be tempted to produce too much of it B. Fiat money is not easily divisible or suitable for small purchases C. Fiat money is not portable or widely accepted

Question

Part 1Which of the following is a disadvantage of using fiat money LOADING... ​?Part 2
A. Public authorities may be tempted to produce too much of it B. Fiat money is not easily divisible or suitable for small purchases C. Fiat money is not portable or widely accepted

BlackTom AI · Accepted Answer

Let’s parse the question and options to understand the typical disadvantages associated with fiat money.
Option A: 'Public authorities may be tempted to produce too much of it.' This aligns with a common critique of fiat money: since it is not backed by a physical commodity, governments can run deficits and increase money supply more easily, potentially leading to inflation or hyperinflation if not carefully managed. The concern about overproduction of fiat currency is a central risk in monetary policy discussions.
Option B: 'Fiat money is not easily divisible or suitable for small purchases.' In practice, fiat money is designed to be highly divisible and practical for everyday transactions. Currencies like coins and banknotes come in small denominations precisely to handle small purchases, and electronic fiat payments enable very fine subdivisions. So this statement is generally incorrect about fiat money.
Option C: 'Fiat money is not portable or widely accepted.' On the contrary, fiat money is typically highly portable and widely accepted within the issuing country (and often accepted for international transactions in the form of currency). The portability and acceptance are among the main advantages of fiat money over commodity money, making this option inaccurate.
In evaluating these points, the core disadvantage highlighted by Option A rests on the incentive structure for authorities under fiat regimes: expanding money supply can erode purchasing power if not constrained, which is a foundational concern in monetary economics. Options B and C describe characteristics that fiat money actually possesses in modern economies, so they do not reflect typical disadvantages.
Thus, the statement in Option A correctly captures a common drawback associated with fiat currencies, while Options B and C describe features that fiat money typically exhibits rather than disadvantages.

Homework:Chapter 3 Homework

Part 1Which of the following is a disadvantage of using fiat money LOADING... ?Part 2 A. Public authorities may be tempted to produce too much of it B. Fiat money is not easily divisible or suitable for small purchases C. Fiat money is not portable or widely accepted

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