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 $9.00. In year two, the price of the same basket is $8.00. From year one to year two, there is at an annual rate of . In year one, $72.00 will buy baskets, and in year two, $72.00 will buy baskets. This example illustrates that, as the price level falls, the value of money .

Answer 1

Answer:

11.11%

8 Baskets and in year 2, 9 Baskets, the value of money will increases

Increases

Explanation:

The computation of the given question is shown below:-

Decrease at an Annual Rate = price of the same basket ÷ the basket costs - one year

= $8 ÷$ 9 - 1

= 0.1111

= 11.11%

In year one, $72.00 will buy  8 Baskets and in year 2, 9 Baskets, the value of money will increases.

The value of money is increasing.