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New Forms of Money

Why do people...

Question

Why do people hold notes and coins when it is clear that the intrinsic value (commodity value) of notes and coins is almost negligible?

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Solution

People hold notes and coins because notes and coins are legal tender. These are fiat money or money backed by the authority of the government. It is unlawful to not accept notes and coins for receipts/payments.

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Similar questions

Q. Consider the following statements:

Which of the statements given above is/are incorrect?

1 and 3 only
1, 2 and 3
2 and 3 only
1 only

Q. State whether the following statements are true or false.
1. Metallic coins are easily portable than paper notes.
2. Token coins are coins whose face value is greater than their intrinsic value.
3. Money facilitates estimation of national income.
4. A cheque is a fiat money.
5. Money increases productivity of capital.

Q. Fill in the blanks with appropriate alternatives given in the brackets.
1) Medium of exchange is __________ function of money. (primary/secondary/contingent/ additional)
2) In the case of __________ coins, intrinsic value is less than their face value. (token/full bodied/representative/standard)
3) The most liquid asset is __________. (cheque/money/shares/debentures)
4) Introduction of __________ removed difficulties of barter. (metals/bank/money/shares)
5) In the initial stage of development, __________ was used. (credit money /paper notes/ metallic coins/commodity money)

Q. The face value of notes and coins used in different countries is called:

Q. Token coins are coins whose face value is greater than their intrinsic value.

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