Suppose that Nick is a potato farmer and Aneta is a carrot farmer. Nick and Aneta are the only people in the economy and both always consume equal amounts of potatoes and carrots. In 2014 the price of potatoes was $5 and the price of carrots was $3.

a. Suppose that in 2015 the price of potatoes was $6 and the price of carrots was $7.50. What was inflation? Was Nick better off, worse off, or unaffected by the changes in prices? What about Aneta?

b. Now suppose that in 2015 the price of potatoes was $6 and the price of carrots stayed at $3. What was inflation? Was Nick better off, worse off, or unaffected by the changes in prices? What about Aneta?

c. Finally, suppose that in 2015 the price of potatoes was $4 and the price of carrots was $2.50. What was inflation? Was Nick better off, worse off, or unaffected by the changes in prices? What about Aneta?