Imagine an economy in which: 1) pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; 2) prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and 3) yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,
A) the yardstick is a medium of exchange but it cannot serve as a unit of account.
B) the yardstick is a unit of account but it cannot serve as a store of value.
C) the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account.
D) the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.

Question

Quizplus · Accepted Answer

The pieces of paper called dollars serve as a medium of exchange and a store of value, while the yardstick serves as a unit of account but cannot serve as a store of value due to its short-term duration. Therefore, option B is the correct answer.

Imagine an Economy in Which: 1) Pieces of Paper Called