Suppose the price level and value of the u. s. dollar in year 1 are 1 and $1, respectively. instructions: round your answers to 2 decimal places. a. if the price level rises to 1.25 in year 2, what is the new value of the dollar? b. if, instead, the price level falls to 0.50, what is the value of the dollar?

a. When the price level rises to 1.25 in year 2, the value of money reduces to $0.80

b. When the price level drops to 0.50, the value of money rises to $2.00

Explanation:

Topic: Price Level and Value of Money

The basic causal relationship between the price level and the value of money is that as the price level goes up, the value of money goes down

Value of Money is calculated using the following formula:

Given

In year 1 are 1 and $1, respectively

a. When Price Level Rises to 1.25 in year 2

The new value of dollar is calculated using

By Substituting 1.25 for Price Level, we have

to two decimal places.

Hence, when the price level rises to 1.25 in year 2, the value of money reduces to $0.80

b. When Price level falls to 0.50

The new value of dollar is calculated using

By Substituting 0.50 for Price Level, we have

to two decimal places.

Hence, when the price level drops to 0.50, the value of money rises to $2.00

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.