Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): A rising price level weakens the role of money as a store of value.
Reason (R): A rising price level erodes the purchasing power of money.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Money can store wealth well only when its value is stable. Rising prices cut what money can buy, so stored money loses value.
Assertion (A): A rising price level weakens the role of money as a store of value. — True. To work well as a store of value, the value of money must be sufficiently stable.
Reason (R): A rising price level erodes the purchasing power of money. — True. When all prices rise, one unit of money buys less of every good.
Why R explains A?
Wealth kept as money is meant for use in future. If prices rise in the meantime, the same money buys fewer goods. This loss of purchasing power is the very reason money becomes a weaker store of value.
NCERT (2026-27): “3.1 FUNCTIONS OF MONEY … This problem can be solved if you sell your rice for money. Money is not perishable and its storage costs are also considerably lower. It is also acceptable to anyone at any point of time. Thus money can act as a store of value for individuals. Wealth can be stored in the form of money for future use. However, to perform this function well, the value of money must be sufficiently stable. A rising price level may erode the purchasing power of money. It may be noted that any asset other than money can also act as a store of value, e.g. gold, landed property, houses or even bonds (to be introduced shortly).” |