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Questions
Mention the effect of inflation on the value of money.
Explain the effect of inflation on value of money.
Solution
- By value of money, we mean its purchasing power or buying capacity. It refers to the amount of things that can be exchanged for a unit of money.
- The value of money depends upon the prices of goods and services.
- During inflation, prices of goods and services increase. Therefore, the purchasing power of money falls. There exists an inverse relationship between price level and value of money.
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