The price level and the value of money are

Analyze the question: It asks how the general price level relates to the value (purchasing power) of money.

Explain the concept: The value of money is the quantity of goods and services one unit of money can buy. It is the reciprocal of the price level:

Value of money = 1 / Price level

Step-by-step reasoning:

1. Suppose a loaf of bread costs ₦200. Then ₦1,000 buys 5 loaves.
2. If prices rise (inflation) and bread now costs ₦500, the same ₦1,000 buys only 2 loaves.
3. Prices went up, but the purchasing power of the money went down.
4. If prices fall (deflation), the same money buys more, so the value of money rises.

The two variables move in opposite directions, which means they are inversely related.

Checking the options:

• A. Positively related: wrong, because this would mean they move in the same direction.
• B. Directly related: wrong, because this means the same as positive.
• C. Not related: wrong, because the value of money depends on the price level.
• D. Inversely related: correct.

Exam tip: Remember "Prices up, money's value down." Whenever you see inflation, think of the naira buying less. The words "positive" and "direct" mean the same thing, so if two options are synonyms, neither is likely to be the answer.