Question

What determines the value (domestic purchasing price) of money?

1)The Federal Reserve System.

2) People’s willingness to accept it in exchange for goods and services.

3) The cache of gold owned by the Treasury.

4) The foreign exchange rate.

Answer 1

2) People’s willingness to accept it in exchange for goods and services.

Value of money is determined by the willingness of people to accept it in exchange of goods and services. Money is anything which is generally acceptable as a medium of exchange.

Foreign exchange rate depicts the value of home country's currency in foreign currency terms so option (4) is incorrect. Federal Reserve System prints money and circulates in the economy so this also does not determine value of money.