Question

When the price level rises, the number of dollars needed to buy a representative basket of goods: A. increases, and so the value of money rises. B. increases, and so the value of money falls. C. decreases, and so the value of money rises. D. decreases, and so the value of money falls.

Answer 1

Answer: B. increases, and so the value of money falls.

Explanation: When the price level rises, the number of dollars needed to buy a representative basket of goods increases, and so the value of money falls. A representative basket of goods refers to a fixed number of consumer goods and services. The price of these goods and services are valued annually. If one or more of these products increase their value you will need more dollars to buy the basket of goods. So, the value of money falls.