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 $7.00. In year two, the price of the same basket is $6.00. From year one to year two, there isdeflation at an annual rate of14.29% . In year one, $21.00 will buy3 baskets, and in year two, $21.00 will buy3.5 baskets. This example illustrates that, as the price level falls, the value of money .

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 $7.00. In year two, the price of the same basket is $6.00. From year one to year two, there isdeflation at an annual rate of14.29% . In year one, $21.00 will buy3 baskets, and in year two, $21.00 will buy3.5 baskets. This example illustrates that, as the price level falls, the value of money .

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Inflation

Section: Chapter Questions

Problem 2SQP

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