Why is fiat currency more vulnerable to dramatic economic shifts than currency on the gold standard?
A. • Fiat currency is generally used in countries with weak economies.
B. • Fiat currency is backed by silver, which is less valuable than gold.
C. • Fiat currency is backed by the government, so it is not as stable as gold.
D. • Fiat currency includes government bonds and the gold standard does not.
C. • Fiat currency is backed by the government, so it is not as stable as gold.
Fiat currency is not backed by a physical commodity like gold, but rather by the government that issues it. This means that the value of fiat currency is largely based on trust in the government and its ability to manage the economy. If there is a loss of confidence in the government's ability to back the currency, it can lead to rapid devaluation and economic instability. On the other hand, currency on the gold standard is directly tied to the value of gold, which is seen as a stable and valuable commodity, making it less vulnerable to dramatic economic shifts.