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Answer:
Commodity money can be used for some other purpose while fiat money can only be used as a medium of exchange
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The difference between commodity money and fiat money is given below.
Definitions:
Commodity money -
- Money that derives its worth from the commodity from which it is made is known as commodity money.
- Commodity money is made up of things that have worth or utility beyond only being exchangeable for products (intrinsic value).
Fiat money -
- A government-produced currency known as "fiat money" is not backed by a tangible good like gold or silver, but rather by the government that created it.
- Instead of being backed by the value of a commodity, fiat money derives its value from the interplay between supply and demand as well as the stability of the government that issues it.
Difference between Commodity and Fiat money -
- Commodity money has some intrinsic value due to the content of precious metal it is made up of or backed by, but debasement or increases in precious metal supply can cause inflation.
- Fiat money is backed only by the faith of the government and its ability to levy taxes.
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