The value (purchasing power) of each unit of money
A) is largely independent of the money supply.
B) tends to increase as the money supply expands.
C) increases as prices rise.
D) tends to decline as the money supply expands in relation to the availability of goods and services.

Question

Quizplus · Accepted Answer

When the money supply expands in relation to the availability of goods and services, the value (purchasing power) of each unit of money tends to decline. This is because as there is more money in circulation, there is more competition for goods and services, which increases the demand for them and the prices. As a result, each unit of money can buy fewer goods and services, leading to a decline in purchasing power.

The Value (Purchasing Power) of Each Unit of Money