Question

If P denotes the price of goods and services measured in terms of money, then

a. 1/P represents the value of money measured in terms of goods and services.

b. P can be interpreted as the inflation rate.

c. the supply of money influences the value of P, but the demand for money does not.

d. All of the above are correct.

Answer 1

Option A.

• If P denotes the price of goods and services measured in terms of money, then 1/P is the value of money measured in terms of goods and services.
• It shows how the value of Money is inversely related to the price level.
• When the price level increases the value of money decreases and when the price level decreases the value of money increases.