Question

Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. In year one, the basket costs $9.00.In year two, the price of the same basket is $8.00. From year one to year two, there is at an annual rate of .In year one, $72.00 will buy baskets, and in year two, $72.00 will buy baskets.This example illustrates that, as the price level falls, the value of money

Answer 1

Increases

Step-by-step explanation:

Value of money can be defined as number of units you get with that money.

Provided a unit here means this combination of newspaper, cup of coffee, and a donut.

Earlier in year 1 it use to cost $9

Then for $72 we can have
`(72)/(9) =` = 8 Units

In year 2 the basket costs $8 as there was a decline in price level

Therefore for $72 we can buy =
`(72)/(8)` = 9 units

Therefore with decrease in price level from $9 to $8 that is by 1 dollar, value of money has increased from 8 units to 9 units of basket.