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 $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:

price level fall and value of money is rises

Explanation:

given data

one year basket costs =  $10.00

two year two basket costs =  $9.00

one year buy baskets = $50

year two,buy baskets = $50

to find out

as the price level falls, the value of money  will be

solution

we see that when we compare to 1 year price go down from $10 to $ 9

so deflation at annual rate is $\frac{10-9}{10}$ = 10%

so here

sum of $50 will be buy here = $\frac{50}{10}$ = $5 in one year

and $ 50 buy in 2 year is = $\frac{50}{9}$ = $5.56 in two year

so this is show here that price level fall and value of money is rises