The level of prices and the value of money Imagine the price level reflects the

Question

The level of prices and the value of money

Imagine the price level reflects the number of dollars needed tp buy a basket of goods containing one cup of tea, one biscuit, and one magazine. In year one, the basket costs $8.

In year two, the price of the same basket is $10. From year one to year two, there is a. deflation/inflation at an annual rate of b. 100%/-5%/25%/10%/-15%.

In year one, $60.00 will but c. 8 baskets/0.5 baskets/6 baskets/7.5 baskets/1 basket, and in year two, $60.00 will buy c. 2 baskets/7.5 baskets/6 baskets/10 baskets/4.25 baskets

This example illustrate that, as the price level rises, the value of money d. falls/remains the same/rises

Explanation / Answer

Rise in prices= (8-10)/8=2/8=0.25
=25%

In year 1 $60 will buy =60/8 =7.5 baskets

falls

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