The level of prices and the value of money
Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one can of seltzer, one bag of pretzels, and one shuttle ride. In year one, the basket costs $11.00.
In year two, the price of the same basket is $10.00. From year one to year two, there is deflation grad at an annual rate of 10.00%_().
In year one, $55.00 will buy 5_() baskets, and in year two, $55.00 will buy 5_() baskets.
This example illustrates that, as the price level falls, the value of money rises
9.The level of prices and the value of money
shuttle ride.In year onethe basket costs $11.00.
In year two, the price of the same basket is $10.00. From year one to year two, there is deflation at an annual rate of 10.00%
In year one,$55.00 will buy 5baskets,and in year two$55.00 will buy 5baskets.
This example illustrates that,as the price level falls,the value of money
rises
