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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 $8.00. In year two, the price of the same basket is $7.00. From year one to year two, there is (Deflaton, Inflation) 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:
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Suppose the price level reflects the number of dollars needed to buy a basket of goods containing on...
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