7687 Money Growth and Inflation Mobile Enhanced Graded Assig

7687 Money, Growth, and Inflation (Mobile Enhanced) Graded Assignment | Read Chapter 12| Back to Assignment Due Thursday 07.19.18 at 0800 AM Attempts: 2 Average: 2/3 1. 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 containig cup of coffee, one donut and one newspaper year one, the basket costs $8.00 In year two, the price of the same basket is $9.00. From year one to year two, there is in year one $16.00 will buy This example illustrates that, as the price level rises, the value of money at an annual rate of baskets, and in year two, $16.00 will buy baskets Y baskets Copyright NoticesTerms of Use Privacy NoticeSecurity Notice Accessiblity

Solution

From year one to year two, there is inflation at an annual rate of 12.50%. In year one, $16.00 will buy 2 baskets, and in year two $16.00 will buy 1.78 baskets. This example illustrates that, as the price level rises, the value of money falls. Workings: 1 As price increase from $8 to $9 from first year to second year, an increase in overall level of price is called inflation. Annual rate of increase = [($9 - $8) / $8] X 100 = 12.50% 2 In year one, $16.00 will buy 2 baskets = $16 / $8 = 2 baskets in year two $16.00 will buy 1.78 baskets. = $16 / $9 = 1.78 baskets