Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of tea, one biscuit, and one magazine. In year one, the basket costs $8.00.In year two, the price of the same basket is $7.00.
From year one to year two, there is at an annual rate of .
In year one, $40.00 will buy baskets, and in year two, $40.00 will buy baskets.
This example illustrates that, as the price level falls, the value of money .

Deflation; 12.50%

5; 5.71

Increases

Explanation:

The percentage change in the basket cost is:

A negative change in cost means that there was a deflation.

From year one to year two, there is deflation at an annual rate of 12.50%.

The number of baskets that could be bought in years one and two are:

In year one, $40.00 will buy 5 baskets, and in year two, $40.00 will buy 5.71 baskets.

This example illustrates that, as the price level falls, the value of money increases.

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi