Question

The value of money varies
A) inversely with the price level
B) directly with the price level
C) directly with the volume of employment
D) directly with the interest rate

Answer 1

b is right option. . . . .

Answer 2

The correct answer is option A) Inversely with the price level.

Price level is defined as the average value of all prices in a country.

Lets consider cases here.

When price level rises-

When price level rises, we can buy less goods and service with the same amount of money.

When price level falls-

When price level falls, we can buy more goods and services with the same amount of money. So, our purchasing power increases.

Thus, value of money changes inversely with the price level.