Consider a hypothetical economy in which rice functions as money. In addition to being valued as money, rice is valued as a consumer good. In this scenario, rice is said to be
a- representative money.
b- fiat money.
c- commodity money.
d- currency.
c- commodity money.
c- commodity money.
In this scenario, rice is used as both money and a consumer good. When a good, like rice, is used as money and also has intrinsic value as a consumer good, it is considered to be commodity money. Commodity money has value based on its own properties and can be used in barter transactions or exchanged for other goods and services. In contrast, representative money (a) represents a claim on a specific amount of a commodity, fiat money (b) has value because a government declares it as legal tender, and currency (d) is a type of money that is widely accepted in a specific geographic region.
In order to determine the correct answer, let's break down the definitions of each term and see which one is the best fit for the given scenario.
a) Representative money: Representative money is a type of currency that is backed by a physical commodity or another item of value. This means that the paper or electronic money is redeemable for a fixed amount of the underlying commodity. However, in the scenario provided, rice is not used as a backing for any specific currency or money.
b) Fiat money: Fiat money is a type of currency that is declared by a government as legal tender, but it is not backed by a physical commodity. Its value is based on the trust and confidence of the people using it. Given that rice is used as a consumer good in this scenario, it is not considered fiat money either.
c) Commodity money: Commodity money is a type of currency that has intrinsic value because it is made from a physical commodity with practical use or as a consumer good. The value of the commodity itself determines the value of the money. In this hypothetical scenario, rice is functioning both as money and being valued as a consumer good. Therefore, rice can be considered as commodity money.
d) Currency: Currency refers to a specific form of money that is widely accepted within an economy as a medium of exchange. It can take various forms such as paper bills, coins, or even digital currency. While rice is functioning as a medium of exchange in this hypothetical economy, it is more accurately described as commodity money rather than a currency.
So, the correct answer in this scenario would be c) commodity money.