766471880 AA Money, Growth, and Inflation (Mobile Enhanced) Graded Assignment ]

Question

766471880 AA Money, Growth, and Inflation (Mobile Enhanced) Graded Assignment ] Read Chapter 12| Back to Assignment Altempts verage 1. The level of prices and the value of money Suppose the price level reffects 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, $80.00 wil buyY baskets, and in year two, $80.00 will buy baskets This exampole Bustrates that, as the price level falls, the value of money Copyright NoticesTerems of Use Privecy Notikce Security NobiceAccessbilty

Explanation / Answer

1. In year two, the price of the same basket is $9.00. From year one to year two, there is deflation at an annual rate of 10%.

   That is: the price has reduced, so it is deflation, and

Deflation rate    = ($10 - $9)/$10

= 1/10

= 10%

2. In year one, $80.00 will buy 8 baskets, and in year two, $80.00 will buy 9 baskets.

    In year one:    1 basket equals to $10.00

                          X = 8 baskets

In year two:    1 basket equals to $9.00

                          Y = 9 baskets ($80/$9)

3. The value of money rise, because if fall of basket cost leads to increase to buy one more basket

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