9. 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 containing one can of soda, one bag of chips, and one comic book. In year one, the basket costs $7.00.

In year two, the price of the same basket is $6.00. From year one to year two, there is at an annual rate of .

In year one, $21.00 will buy baskets, and in year two, $21.00 will buy baskets.

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