a.If the price level rises to 1.40 in year 2, what is the new value of the dollar? b. If, instead, the price level falls to 0.80, what is the value of the dollar?

arribentssv8

arribentssv8

Answered question

2022-12-17

a.If the price level rises to 1.40 in year 2, what is the new value of the dollar?
b. If, instead, the price level falls to 0.80, what is the value of the dollar?

Answer & Explanation

Baron Marquez

Baron Marquez

Beginner2022-12-18Added 6 answers

Given,
Price level = 1
Value of U.S dollar = $1
The relation between the price level or inflation rate and value of a currency is as follows:
Value of currency =nominal currency value /price level
a. If the price level rises to 1.40, the value of dollar can be computed as:
Value of dollar = 1 price level = 1 1.40 = 0.025
b. When price level fall to 0.80, the value of dollar is:
= 1 price level = 1 0.80 = 1.25

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