The purchasing power of money depends upon the__________

1. Analyze the question The question asks what determines the purchasing power of money, meaning how many goods and services one unit of money (e.g., ₦1) can buy.

2. Explain the concept Purchasing power of money is the quantity of goods and services a unit of currency can buy. It is inversely related to the general price level:

Purchasing power of money = 1 / Price level

• When prices rise (inflation), each naira buys less, so purchasing power falls.
• When prices fall (deflation), each naira buys more, so purchasing power rises.

3. Solution Let's check each option:

• A. Value: Too vague. "Value of money" is essentially another way of saying purchasing power, so it doesn't explain what it depends on.
• B. Index: A price index (such as the Consumer Price Index) is only a tool for measuring price changes, not the factor that determines purchasing power.
• C. Price Level: Correct. The general level of prices directly determines how much a unit of money can buy.
• D. Wages: Wages are income. They affect how much money you earn, not what each naira can buy.

4. Answer The purchasing power of money depends upon the price level, which is option C.

5. Exam tip Remember: "Prices up, purchasing power down." They move in opposite directions. If a JAMB question mentions inflation, think of falling purchasing power. If it mentions deflation, think of rising purchasing power.