The value (purchasing power)of each unit of money
A)does not depend on the amount of money in circulation.
B)tends to increase as the money supply expands.
C)increases as prices rise.
D)is inversely related to prices (in other words,money's value falls as prices rise and vice versa).

Question

Quizplus · Accepted Answer

This is known as the Quantity Theory of Money, which states that there is an inverse relationship between the value of money and prices. When there is more money in the economy, prices tend to rise, and the purchasing power of each unit of money falls. Conversely, when the money supply is tight, prices tend to fall, and the value of each unit of money increases.

The Value (Purchasing Power)of Each Unit of Money