Mastergp
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First of all what is the value of money is seen as the quantity of goods and services which a given amount of money can buy. In their words, the value of money refers to the purchasing power of money.
When a certain amount of money can buy fewer goods and services, this will mean that the value of money has fallen and this can only happen where there is rise in prices.
They are factors that determine the value of money
The price level:
The value of money varies with the price level. If the price level increases, this would mean that a given sum of money would buy fewer goods and services. The value of money therefore falls with an increase in the price level.
The supply of money and its speed:
When a given quantity of money in circulation increases while there is little or no corresponding increase in the available quantity of goods and services, this would mean that a larger quantity of money would purchase fewer commodities.
Inflation and deflation:
It is generally known that the value of money reduces during the period of inflation while its value increases during deflation.
When a certain amount of money can buy fewer goods and services, this will mean that the value of money has fallen and this can only happen where there is rise in prices.
They are factors that determine the value of money
The price level:
The value of money varies with the price level. If the price level increases, this would mean that a given sum of money would buy fewer goods and services. The value of money therefore falls with an increase in the price level.
The supply of money and its speed:
When a given quantity of money in circulation increases while there is little or no corresponding increase in the available quantity of goods and services, this would mean that a larger quantity of money would purchase fewer commodities.
Inflation and deflation:
It is generally known that the value of money reduces during the period of inflation while its value increases during deflation.