Value of Money
Value of money is the purchasing capacity of money relating to the price of goods and services. Purchasing power of money is the amount of goods and services that a unit can buy. The value of money does not remain the same forever, but it changes over the period of time. The value of money rises or falls. Value of money is inversely related with general price level.
It can be denoted as:
Vm= 1/P
Where,
Vm= Value of money
P= General price level
1/P= Reciprocal of general price level
When price level goes up then the purchasing power of money goes down. So, higher the price level, lower the value of money and vice-versa. Thus, value of money also goes down if prices increase.
