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Question

We accept paper money as a medium of exchange because _____.

A
it has gold backing
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B
the law legalizes it
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C
reserve bank of India has precious metals against which it prints notes
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D
everyone else accepts it
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Solution

The correct option is C the law legalizes it
Paper money is printed and circulated by Reserve Bank of India.
Reserve Bank of India is the Central Bank of India which is authorized by the Government of India to print and circulate the money.
Paper money is legalized by the government as the medium of exchange.
Paper currency can only be printed legally by the Reserve Bank of India and private parties cannot print the currency.

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