In the context of economics, what does it mean to say that money is divisible?

• A. Money can be broken down into smaller units to facilitate transactions of varying sizes.
• B. Money can be exchanged for goods and services at any time.
• C. Money retains its value over long periods of time.
• D. Money is accepted by everyone in an economy.

Answer: (A)

Verified step by step guidance

1. Understand that the concept of divisibility in money refers to its ability to be broken down into smaller units without losing value, which allows for transactions of different sizes to be conducted efficiently.
2. Recognize that divisibility is important because it enables consumers and businesses to make purchases or sales that are not limited to whole units of currency, facilitating precise pricing and exchange.
3. Compare divisibility with other characteristics of money such as acceptability (money is accepted by everyone), store of value (money retains value over time), and liquidity (money can be exchanged at any time) to clarify the unique meaning of divisibility.
4. Identify that the correct interpretation of divisibility is that money can be divided into smaller denominations (like dollars into cents) to accommodate transactions of varying amounts.
5. Summarize that saying money is divisible means it can be broken down into smaller units to facilitate transactions of varying sizes, distinguishing it from other properties of money.