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Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one can of soda, one bag of chips, and one comic book. In year one, the basket costs $10.00. In year two, the price of the same basket is $9.00. From year one to year two, there is at an annual rate of . In year one, $50.00 will buy baskets, and in year two, $50.00 will buy baskets. This example illustrates that, as the price level falls, the value of money .

1 Answer

3 votes

Answer:

price level fall and value of money is rises

Step-by-step explanation:

given data

one year basket costs = $10.00

two year two basket costs = $9.00

one year buy baskets = $50

year two,buy baskets = $50

to find out

as the price level falls, the value of money will be

solution

we see that when we compare to 1 year price go down from $10 to $ 9

so deflation at annual rate is
(10-9)/(10) = 10%

so here

sum of $50 will be buy here =
(50)/(10) = $5 in one year

and $ 50 buy in 2 year is =
(50)/(9) = $5.56 in two year

so this is show here that price level fall and value of money is rises

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