Answer:
a. $0.625
b. $3.33
Explanation:
The computations are shown below:
a. If the price level is increase to 1.60, the new value of the dollar would be
= Dollar ÷ price increase
= $1 ÷ 1.60
= $0.625
b. If the price level is decrease to 0.30, the new value of the dollar would be
= Dollar ÷ price decrease
= $1 ÷ 0.30
= $3.33
Simply we divide the dollar value by the price decrease or price increase
Answer:
a. When the price level rises to 1.60 in year 2, the value of money reduces to $0.625
b. When the price level drops to 0.30 in year 2, the value of money rises to $3.33
Explanation:
The relationship between the price level and the value of money is defined such that, the value of money reduces as price level increases
We calculate Value of Money by;
V = 1/P
Where V = Value of Money
P = Price Level
a.
a. When Price Level Rises to 1.25 in year 2
The new value of dollar is calculated as follows;
V = 1/P
Where P = 1.60
V = 1/1.60
V = 0.625
When the price level rises to 1.60 in year 2, the value of money reduces to $0.625
b. When Price Level drops to 0.30
The new value of dollar is calculated as follows;
V = 1/P
Where P = 0.30
V = 1/0.30
V = 3.33
When the price level drops to 0.30 in year 2, the value of money rises to $3.33
