CHAPTER 5
Relationship between Money and Prices
The relationship between money and prices helps in understanding the changes in the value of money. The value of money differs from the value of other objects in one fundamental respect. That is, the value of money represents the general purchasing power or command over “things in general.” High prices of other things are reflected in the low exchange value of money. Similarly, low prices of other things mean high exchange value of money. The value of money is, therefore, the reciprocal of the general price level (p) and can be expressed as 1/p. One of the basic problems is to identify the factors that determine the value of money or to explain the causes responsible for changes in the purchasing ...
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