If there is a general increase in the price level, the value of money in terms of any commodity must have ___________.
Which of the following options suits best in the above blank?
Answer & explanation
Correct answer: option 2
The correct answer is Option 2: Decreased
If there is a general increase in the price level, the value of money in terms of any commodity must have decreased. When the overall price level rises, it means that the prices of goods and services are increasing. As a result, each unit of money has less purchasing power and can buy fewer goods and services than it could before. Therefore, the value of money, in terms of what it can purchase, declines when the price level increases.