Value of Money

Value of money

Value of money is defined as the quantity of goods and services that will be exchanged for one unit of money. It means that the value of money is the purchasing power and is measured in terms of quantity and services it can buy. The value of money depends upon the level of prices. When the price level rises, the value of money falls because the same unit of money can purchase less than before.

There is a negative relationship between the value of money and the price level. But there is a positive relationship between the value of money and it’s purchasing power. The higher the value of money, the higher will be the purchasing power and vice-versa.

According to Irving Fisher,” The purchasing power of money is the reciprocal of levels of prices.”

According to Benjamin, “ The value of money means the purchasing power of a unit of currency over things in general.”

The value of money can be expressed symbolically as follows:

Vm=1/P 

Where,

Vm = value of money

P = price level