Question

What is used as money is determined by:

• A. Law of customs
• B. Government's acceptance of a commodity standard
• C. Government's acceptance of an inconvertible paper standard
• D. Its use as a store of value

Hint:

For any commodity or paper to act as money, it must be able to hold its value over time. If it cannot act as a store of value, people will reject it as a medium of exchange.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
In economic theory, "money is what money does." Anything can serve as money as long as it performs the essential functions of money in the economy.

Step 2: Detailed Explanation:
The three primary functions of money are:
1. A medium of exchange: Facilitating the trade of goods and services.
2. A unit of account: Providing a common measure of value.
3. A store of value: Allowing purchasing power to be saved and used in the future.
Historically, anything that is generally accepted and can reliably serve as a store of value (preserving wealth over time) and a medium of exchange is adopted and treated as money by society. Government mandates can back fiat currency, but the actual utility and trust in its role as a store of value ultimately determine its acceptance and use as money.

Step 3: Final Answer:
Its use as a store of value is a fundamental determining quality of money, matching Option (D).