The value of money as a means of payment:
A) is independent of changes in the amount of money in the economy.
B) is fixed once relative prices are set.
C) depends on the amount of money in the economy, among other things.
D) depends on whether the majority of M1 is in currency or demand deposits.

Question

Quizplus · Accepted Answer

The value of money as a means of payment depends on the amount of money in the economy, among other things. The more money there is in the economy, the less valuable each individual unit of money becomes. This is because the supply of money increases, while the demand for goods and services remains constant. As a result, prices rise, and the value of each unit of money decreases. Conversely, if the amount of money in the economy decreases, the value of each unit of money increases, as there is less money chasing the same amount of goods and services.

The Value of Money as a Means of Payment