Answer to Question #256891 in Macroeconomics for Shubhanshul

Question

What is meant by the value of money? Is the fisher equation of magnitude a satisfactory explanation of the value of money?

Answer 1

The value of money, is generally the quantity of goods that will be exchanged for one unit of money or purchasing power.

Fisher equation of magnitude is a satisfactory explanation of the value of money because when purchasing power increases due to high inflation, lenders and investors use it to request for an additional reward in compensation of losses incurred.