Money is medium of exchange and a store of value. It can buy goods and services in the current time period as well as in future. Thus, money represents a command over goods and services. The amount of goods and services that a unit of money can buy is called its purchasing power or value of money. How much value does money have, depends upon how many goods it can buy. And the number or amount of goods that a unit of money can buy depends upon the prices of those goods; the higher the prices, the smaller is the amount that money can buy and hence lower is the value of money. And when goods prices are low, more is the purchasing power of money and higher is its value. Thus, value of money and price level are inversely related. But, what determines the general price level, i.e., overall prices of all goods and services in the market? Does the quantity of money in the market has any influence on the price level?
SUBMIT ASSIGNMENT NOW!