In what sense do self-fulfilling expectations determine the acceptability of a medium of exchange?
A)People like to do what the government expects them to do.
B)People value something as money only if they believe others will accept it from them as payment.
C)People expect that money will never lose its value.
D)People expect that eventually every country will use the same medium of exchange.

Question

Quizplus · Accepted Answer

Self-fulfilling expectations determine the acceptability of a medium of exchange because people value something as money only if they believe others will accept it from them as payment. This creates a network effect, where the more people use a particular medium of exchange, the more valuable it becomes because of its wider acceptability. If people believe that others will not accept a particular medium of exchange, then they will not value it as money, and it will not be widely accepted. Therefore, the acceptability of a medium of exchange is determined by the self-fulfilling expectations of its users.

In What Sense Do Self-Fulfilling Expectations Determine the Acceptability of a Medium