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 $10.00. In year two, the price of the same basket is $9.00. From year one to year two, there is at an annual rate of . In year one, $50.00 will buy baskets, and in year two, $50.00 will buy baskets. This example illustrates that, as the price level falls, the value of money .

Please refer to Explanation

Explanation:

Your question is not very clear so I shall be adding the missing spaces as I go along

1. From year one to year two, there is at an annual rate of .

In year one the price was $10 and in year 2 the price was $9.

The decrease therefore can be calculated by,

= 10 - 9 / 10

= 0.1

= 10%

So from year 1 to year 2 there is A DECREASE at an annual rate of 10%.

2. In year one, $50.00 will buy baskets, and in year two, $50.00 will buy baskets.

In year 1, with a price of $10 per basket, $50 will buy,

= 50/10

= 5 baskets.

In year 2, with a price of $9 per basket, $50 will buy,

= 50/9

= 5.5 baskets.

= 5 baskets if they don't allow a half basket.

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

As we just saw, when price levels go down, the value of money comes up meaning that you can buy more goods for the same amount of money.

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