Question

A fall in the level of prices
a. does not affect the value of money.
b. reduces the value of money.
c. increases the value of money.
d. has an uncertain effect on the value of money.

Answer 1

A fall in the level of prices increases the money value while the increase in the prices level decreases the money value. Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. This means as the inflation rises every dollar buys a smaller percentage of a good or a service.

Answer 2

A fall in the level of prices increases the value of money and in the same way if the price level doubles the value of money falls by 50 percent. So the price level of the goods and services and the value of the money are always interlinked, one affects the other.