Problems with the Use of Commodity Money Include All of the Following

question 17

Multiple Choice

Problems with the use of commodity money include all of the following except

• A) it is expensive to produce.
• B) there is an opportunity of fraud in the production of commodity money.
• C) bits could be clipped off coins and melted down without detection.
• D) it carries a high opportunity cost because the commodity could not be diverted from other uses.
• E) there are several good substitutes.

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Definitions:

Risk Premium

The extra return expected by an investor for holding a risky asset, over and above the risk-free rate.

Discount Rate

The interest rate used in calculating the present value of future cash flows. It reflects the time value of money and risk.

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of funds to the borrower and the real yield to the lender or investor.

Nominal Net Cash Flow

The total amount of cash that flows into and out of a business, not adjusted for inflation.