Question

1. The level of prices and the value of money

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 $8.00.

In year two, the price of the same basket is $7.00. From year one to year two, there is (Deflaton,Inflation) at an annual rate of _____%? .

In year one, $40.00 will buy ________ baskets, and in year two, $40.00 will buy ________ baskets.

This example illustrates that, as the price level falls, the value of money (rises,falls,remains the same) .

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

In year one, the basket costs $8.00.

In year two, the price of the same basket is $7.00.

Deflation= (7/8)-1= - 12.5%

In year one, $40.00 will buy ________ baskets, and in year two, $40.00 will buy ________ baskets.

Year 1= 40/8= 5 baskets

Year 2= 40/7= 5.71 baskets

The value of money rises.