Question

which of the following is true about the impact of inflation on the value of money?

if inflation rises, the value of money is worthless.
if inflation rises, the value of money increases.
if inflation rises, the value of money decreases.
if inflation rises, the value of money remains the same.

Explanation:

Define inflation and its effect on purchasing power

$$ \text{Inflation} \implies \text{Increase in general price level of goods and services} $$

Determine the relationship between inflation and the value of money

$$ \text{Price Level} \uparrow \implies \text{Purchasing Power of a Unit of Currency} \downarrow $$

Evaluate the given multiple-choice options

$$ \text{Option 3: "If inflation rises, the value of money decreases." is correct.} $$

Answer:

• If inflation rises, the value of money is worthless.
• If inflation rises, the value of money increases.
• If inflation rises, the value of money decreases. (Correct answer)
• If inflation rises, the value of money remains the same.