BANKING AFFAIRS

Detailed explanation-1: -Value of money is what one unit of money can buy and price level is the average of prices of all the goods and services within an economy. So when the price level increases the value of money goes down and vis a versa. Hence the relationship between price level in an economy and value of money is inverse.

Detailed explanation-2: -There is a direct relationship between the money supply in the economy and the level of prices of goods and services sold. If we increase the money supply in the left-hand side of the equation, the average price level will increase at the similar pace, which we can observe clearly from the market condition.

Detailed explanation-3: -In theory, there is a strong link between the money supply and inflation. If the money supply rises faster than real output, then prices will usually rise. This means if a Central Bank prints more money, we will often (though not always!) get higher inflation.

Detailed explanation-4: -Money supply and interest rates have an inverse relationship. A larger money supply lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplies tend to raise market interest rates, making it pricier for consumers to take out a loan.

Detailed explanation-5: -The money supply curve is vertical because the Fed sets the amount of money available without consideration for the value of money. The money demand curve slopes downward because as the value of money decreases, consumers are forced to carry more money to make purchases because goods and services cost more money.