Jurgen Klopp has been allowed to splash the cash this summer as he seeks to force the Reds into contention for the Premier League title.
City are the current holders of that prize after a record-breaking campaign in 2017-18.
Pep Guardiola has assembled a star-studded squad at the Etihad Stadium and despite an elaborate upgrade on Merseyside, Murphy considers only two Liverpool players to be good enough for City.
Former Reds midfielder Murphy told talkSPORT: “Fabinho, Keita, Alisson are all good players and they give Liverpool strength in depth and competition for places, which does increase performance, but would any of those players get in City’s team?
“[Mohamed] Salah and [Virgil] Van Dijk would get in City’s team. Other than that, probably no others [would get in].
“You can’t base your transfer policy on buying better players than City have. It is nearly impossible. You can’t buy a better player than [Kevin] De Bruyne in midfield, so you have to compete in a different way.
“What I like that Klopp has done is he has signed quality where he has needed it – the middle of the park they were lacking – there is great competition for places and he did it early.
“Shaqiri is a good one as well. That is not bad business the money they have spent there. He had a good World Cup and he will create competition for places.
“Liverpool have done really well and will bridge the gap with City.”
While backing Klopp’s side, who finished 25 points off the pace last season, to close on City in 2018-19, Murphy believes a first top-flight crown since 1990 will once again remain elusive.
He added: “I think the gap is too big to breach so quickly for some of the other teams chasing, like Liverpool and [Manchester] United. For me, I think City will be champions again.
“They are an exquisite team now. Their confidence, their ability to rotate players and their ability to win even when not playing brilliantly is there for all to see.
“That game against Chelsea – although it’s only a Community Shield – just reiterates the competition they have for places. They won that game without three of their best players.
“For me, my top four would be City, then Liverpool, United and Tottenham.”