Question

Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of tea, one biscuit, and one magazine. 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 .

Answer 1

Answer: Please refer to Explanation

Step-by-step explanation:

Your question is not very clear so I shall be adding the missing spaces as I go along

1. From year one to year two, there is __________ at an annual rate of ________.

In year one the price was $10 and in year 2 the price was $9.

The decrease therefore can be calculated by,

= 10 - 9 / 10

= 0.1

= 10%

So from year 1 to year 2 there is A DECREASE at an annual rate of 10%.

2. In year one, $50.00 will buy ______ baskets, and in year two, $50.00 will buy _______ baskets.

In year 1, with a price of $10 per basket, $50 will buy,

= 50/10

= 5 baskets.

In year 2, with a price of $9 per basket, $50 will buy,

= 50/9

= 5.5 baskets.

= 5 baskets if they don't allow a half basket.

3. This example illustrates that, as the price level falls, the value of money ________. RISES.

As we just saw, when price levels go down, the value of money comes up meaning that you can buy more goods for the same amount of money.

If you need any clarification do comment.