Which monetary instrument is legal tender that is backed only by government promise?

Which monetary instrument is legal tender that is backed only by government promise?

• A. Gold coin
• B. Barter
• C. Money
• D. Fiat money

Answer: (D)

Fiat money is money whose value comes from the government’s declaration and the trust people have in that government, not from a physical asset. It’s legal tender, meaning the law requires it to be accepted for debts, so its value rests on the government’s promise to maintain stability and on public confidence rather than on something like gold. Gold coins are money, but their value is tied to the metal itself, not just a government promise. Barter isn’t money at all—it’s a direct swap of goods and services. “Money” as a general term could refer to various forms, but this item specifically is backed only by government promise, which makes fiat money the correct choice.

Fiat money is money whose value comes from the government’s declaration and the trust people have in that government, not from a physical asset. It’s legal tender, meaning the law requires it to be accepted for debts, so its value rests on the government’s promise to maintain stability and on public confidence rather than on something like gold. Gold coins are money, but their value is tied to the metal itself, not just a government promise. Barter isn’t money at all—it’s a direct swap of goods and services. “Money” as a general term could refer to various forms, but this item specifically is backed only by government promise, which makes fiat money the correct choice.