When the number of dollars needed to buy a representative basket of goods falls, what happens to the value of money?
A) It rises, and so the price level rises.
B) It rises, and so the price level falls.
C) It falls, and so the price level rises.
D) It falls, and so the price level falls.

Question

Quizplus · Accepted Answer

If the number of dollars needed to buy a representative basket of goods falls, it means that the goods have become cheaper relative to the dollar. This implies that the value of money has increased, since it can buy more goods than before. As a result, the price level should fall, as it takes fewer dollars to buy the same amount of goods than before.

When the Number of Dollars Needed to Buy a Representative