Dollar bills in the modern economy serve as money because:

• A. They are the only form of currency used in transactions.
• B. They are backed by gold reserves.
• C. They are widely accepted as a medium of exchange.
• D. They have intrinsic value equal to their face value.

Answer: (C)

Verified step by step guidance

1. Understand the concept of money in microeconomics, which typically includes three main functions: medium of exchange, unit of account, and store of value.
2. Recognize that for something to serve as money, it must be widely accepted by people in exchange for goods and services, which is the definition of a medium of exchange.
3. Evaluate the options given: money is not necessarily the only form of currency used, nor is it always backed by gold reserves in modern economies, and it often does not have intrinsic value equal to its face value.
4. Identify that the key reason dollar bills serve as money is because they are widely accepted as a medium of exchange, meaning people trust and use them to facilitate transactions.
5. Conclude that the correct explanation aligns with the function of money as a medium of exchange, which is fundamental in modern economies.