Which of the following best explains what gives money its value in a modern economy?

• A. The physical durability and appearance of the currency
• B. The trust and acceptance of money by people and institutions as a medium of exchange
• C. The total quantity of money printed by the government
• D. The amount of gold or silver backing each unit of currency

Answer: (B)

Verified step by step guidance

1. Understand that in a modern economy, money's value is not primarily derived from its physical characteristics or intrinsic commodity value, but rather from its function and acceptance.
2. Recognize that money serves as a medium of exchange, a unit of account, and a store of value, and these functions depend heavily on the trust people and institutions place in it.
3. Analyze why physical durability or appearance alone cannot sustain money's value, as these are necessary but not sufficient conditions for money to be accepted widely.
4. Consider the role of government-issued currency, which is typically fiat money, meaning it is not backed by a physical commodity like gold or silver, but by legal decree and collective trust.
5. Conclude that the best explanation for what gives money its value in a modern economy is the trust and acceptance by people and institutions, enabling it to function effectively as a medium of exchange.