Question

With reference to Fiat Money, consider the following statements:
1) It is the money declared by a government to be legal tender.
2) It is the money without intrinsic value.
3) It is the state issued money which is neither legally convertible to any other thing, nor fixed in value terms of any objective standard.
Which of the statements given above is/are correct?

• A. 1 and 2
• B. Only 1
• C. Only 2
• D. All of these

Answer 1

The correct option is D All of these

Fiat money is currency that has the government backing and is declared by it to be legal tender. It is not backed by a physical commodity and thus doesn't have any intrinsic value. Its value is derived from the relationship between demand and supply rather than the value of the material that the money is made of.