If two bags of rice were sold for N1,250 a mouth ago and two weeks later, the same amount was used to procure…

Analyze the question

The question asks about the value of money when the price of rice changes. The key is to compare how much rice the same amount of money (N1,250) can buy at two different times.

Concept

The value of money is its purchasing power, meaning how many goods and services a unit of money can buy.

• If the same money buys less, the value of money is falling (prices are rising, which is inflation).
• If the same money buys more, the value of money is rising (prices are falling, which is deflation).

Solution

• A month ago: N1,250 bought 2 bags of rice, so 1 bag cost N625.
• Two weeks later: N1,250 bought only 1 bag of rice, so 1 bag cost N1,250.

The price of a bag of rice doubled, from N625 to N1,250. The same N1,250 now buys only half as much rice as before. So the purchasing power of money has fallen.

The wording "sold for N1,250" is a little awkward. It is best read as "N1,250 was the amount that bought two bags". Either way, the same sum of money now gets you less rice.

Answer: B. decreasing

Why not the others?

• A (constant): the purchasing power changed.
• C (fluctuating): this would need ups and downs, but we see only one direction of change.
• D (increasing): this would mean the money buys more, which is the opposite of what happened.
• E (proportional): this is not a term used to describe the value of money here.

Exam tip: Ask yourself, "Does the same money buy more or less than before?" Less means the value of money is falling (inflation). More means it is rising (deflation). Rising prices always mean the value of money is going down.