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 $9.00.In year two, the price of the same basket is $8.00. From year one to year two, there is at an annual rate of .In year one, $72.00 will buy baskets, and in year two, $72.00 will buy baskets.This example illustrates that, as the price level falls, the value of money

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stokholm stokholm · Answer 1 · 2019-08-19T14:05:10+02:00

Answer:

Increases

Explanation:

Value of money can be defined as number of units you get with that money.

Provided a unit here means this combination of newspaper, cup of coffee, and a donut.

Earlier in year 1 it use to cost $9

Then for $72 we can have [tex]\frac{72}{9} =[/tex] = 8 Units

In year 2 the basket costs $8 as there was a decline in price level

Therefore for $72 we can buy = [tex]\frac{72}{8}[/tex] = 9 units

Therefore with decrease in price level from $9 to $8 that is by 1 dollar, value of money has increased from 8 units to 9 units of basket.