Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. 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 (a. inflation, b. deflation) 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 (a. rises, b. falls, c. remains the same).
Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. 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 (a. inflation, b. deflation) 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 (a. rises, b. falls, c. remains the same).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. 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 (a. inflation, b. deflation) 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 (a. rises, b. falls, c. remains the same).
Transcribed Image Text:**Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. 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 a **drop in the price level** at an annual rate of **11.11%**.
In year one, $72.00 will buy **8** baskets, and in year two, $72.00 will buy **9** baskets.
This example illustrates that, as the price level falls, the value of money **increases**.
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