Question

question 5 (1 point)
a policymaker claims: \even if prices are quoted inconsistently across multiple units of account, the economy can function smoothly as long as a single medium of exchange exists.\ what is the flaw in this statement?
units of account are irrelevant as long as trust in the medium of exchange is maintained.
units of account are synonymous with the medium of exchange, so the claim is valid.
a single medium of exchange cannot ensure economic stability without a consistent unit of account.
multiple units of account create confusion, undermining the ability to compare prices consistently.

Explanation:

To solve this, we analyze each option:

• Option 1: Units of account are relevant for price comparison and economic clarity, so this is wrong.
• Option 2: Units of account (for measuring value) and medium of exchange (for trading) are distinct functions of money, so they aren't synonymous, and the claim isn't valid.
• Option 3: The flaw is about inconsistent units of account, not just the medium of exchange's ability to ensure stability. This option's focus is off.
• Option 4: A unit of account is used to measure and compare prices. Inconsistent units (multiple units of account) make it hard to compare prices, causing confusion and hindering smooth economic function, even with a medium of exchange. This identifies the flaw correctly.

Answer:

D. Multiple units of account create confusion, undermining the ability to compare prices consistently.