ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Fiat Money and Legal Tender: The form of money that is issued by the government and is not backed by any commodity is known as fiat money. Ex: INR, Dollar, Pounds, etc. The term legal tender states the money that is legally issued by the government. Ex: Coins and Banknotes.

Detailed explanation-2: -It was derived from the Latin word moneta, a name given to the Roman goddess Juno, at or near whose temple the Romans first began minting coins around 300 BCE. (Read Milton Friedman’s Britannica entry on money.)

Detailed explanation-3: -The 4 different types of money as classified by the economists are commercial money, fiduciary money, fiat money, commodity money. Money whose value comes from a commodity of which it is made is known as commodity money.

Detailed explanation-4: -When the price level rises money can buy less goods and services. So we say that its purchasing power has fallen. Conversely, when the price level falls, money can buy more and we can say its purchasing power has gone up. Thus, the value of money changes inversely with the price level.

Detailed explanation-5: -Money as a Unit of Account Due to money’s use as a medium of exchange for buying and selling and as a value indicator for all kinds of goods and services, money can be used as a unit of account.