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Difficulty: EasyTypes and Supply of Money

Match each type of money on the left with its corresponding economic definition or characteristic on the right.

  • Legal TenderMoney backed by law that creditors are legally required to accept for settlement of debts
  • Near MoneyHighly liquid assets like savings deposits and Treasury bills that serve as a store of value but cannot be directly spent
  • Commodity MoneyA medium of exchange that has intrinsic value as a physical item separate from its function as currency
  • Token MoneyCoins whose face value is greater than the intrinsic value of the metal contained in them

Answer

Legal Tender pairs with currency backed by law for debt settlement; Near Money pairs with liquid store-of-value assets not directly spendable; Commodity Money pairs with items having intrinsic non-monetary value; and Token Money pairs with coins whose face value exceeds their material value.
Each type of money is matched correctly according to standard monetary economic definitions: Legal Tender relies on statutory declaration; Near Money encompasses liquid financial assets; Commodity Money has inherent commodity worth; and Token Money has an intrinsic value lower than its face value.

Step-by-Step Solution

1
Identify the defining characteristic of Legal Tender.
Legal Tender is money declared by law to be accepted in payment of debts.
By definition, legal backing enforces acceptance for all transactions.
2
Identify the defining characteristic of Near Money.
Near Money refers to non-cash assets easily converted into liquidity.
Examples include savings deposits and short-term securities.
3
Identify the defining characteristic of Commodity Money.
Commodity Money has intrinsic value.
It functions both as a commodity in consumption/production and as currency.
4
Identify the defining characteristic of Token Money.
Token Money face value exceeds metallic value.
Modern coins cost less to produce than the denomination stamped on them.

Key Concept

Classification and definitions of types of money
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Topics

Types and Supply of Money

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