Question

Let's consider the effects of inflation in an economy composed of only two people: Bob, a bean farmer, and Rita, a rice farmer. Bob and Rita both always consume equal amounts of rice and beans. In $2016,$ the price of beans was $\$ 1$ and the price of rice was $\$ 3$ a. Suppose that in 2017 the price of beans was $\$ 2$ and the price of rice was $\$ 6 .$ What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita? b. Now suppose that in 2017 the price of beans was $\$ 2$ and the price of rice was $\$ 4 .$ What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita? c. Finally, suppose that in 2017 the price of beans was $\$ 2$ and the price of rice was $\$ 1.50 .$ What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita? d. What matters more to Bob and Rita-the overall inflation rate or the relative price of rice and beans?

          Let's consider the effects of inflation in an economy composed of only two people: Bob, a bean farmer, and Rita, a rice farmer. Bob and Rita both always consume equal amounts of rice and beans. In $2016,$ the price of beans was $\$ 1$ and the price of rice was $\$ 3$
a. Suppose that in 2017 the price of beans was $\$ 2$ and the price of rice was $\$ 6 .$ What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
b. Now suppose that in 2017 the price of beans was $\$ 2$ and the price of rice was $\$ 4 .$ What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
c. Finally, suppose that in 2017 the price of beans was $\$ 2$ and the price of rice was $\$ 1.50 .$ What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
d. What matters more to Bob and Rita-the overall inflation rate or the relative price of rice and beans?

Added by Krystal M.

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