Question

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 $8.00. In year two, the price of the same basket is $7.00.

From year one to year two, there is ____ at an annual rate of _________(how do i calculate the rate?)
In year one, $40.00 will buy_______ baskets, and in year two, $40.00 will buy ______.

Answer 1

From year one to year two, there is deflation at an annual rate of 12.50%

Step-by-step explanation:

Inflation refers to the quantity measure which measures the average price rise in the goods and services of a particular basket over a particular period of time.

The Formula to calculate inflation rate is (Future Price - Present Price) / Present Price .

Inflation Rate = ($7-$8)/$8 = -12.50%

Here Negative Sign shows Deflation Rate.

In year one, 5 basket at price of $8 for each basket can be buy at $40

In year two, 5.71 basket at price of $7 for each basket can be buy at $40