Money value questions and answers


1. What is meant by “monetary value”?

The monetary value (also called purchasing power) refers to the amount of goods or services that can be bought for a monetary unit.

2. What depends on the amount of goods that can be purchased through a monetary unit?

The amount of goods that can be purchased by a monetary unit depends on the market price of the asset.

3. What is the relationship between monetary value and price level?

There is a reciprocal relationship between monetary value and price level.

4. What is the formula for the relationship between monetary value and price level?

Formula: Gw = 1 / P or (P-1) Explanation: Gw = monetary value and P = price index

5. How does the monetary value change when the price index rises by 5%?

If the price index increases by 5% (from 100 to 105), the monetary value drops to 95.2% (1.05-1).

6. When is there inflation?

If the monetary value decreases in the sense of purchasing power, then there is inflation (devaluation).

7. When is deflation?

If the monetary value increases in terms of purchasing power, then there is deflation.

8. What is meant by an intrinsic monetary value?

The internal monetary value, also known as internal value, is the value of the money, which is determined by calculation in the domestic price index.

9. What is meant by an external monetary value?

The external monetary value is the foreign exchange rate of the country, which is determined in relation to the price level abroad.

10. What measures are necessary to establish parity between two foreign currencies?

In case of imbalances between two foreign currencies, revaluations or devaluations of the currencies are necessary to restore the parity.

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