Question: 5 . Problems and Applications Q5 Consider the effects of inflation in an economy composed of only two people: Raphael, a bean farmer, and Susan,

5 . Problems and Applications Q5

Consider the effects of inflation in an economy composed of only two people: Raphael, a bean farmer, and Susan, a rice farmer. Raphael and Susan both always consume equal amounts of rice and beans. In 2019 the price of beans was $1, and the price of rice was $4.

Suppose that in 2020 the price of beans was $2 and the price of rice was $8.

Inflation was

Indicate whether Raphael and Susan were better off, worse off, or unaffected by the changes in prices.

	Better Off	Worse Off	Unaffected
Raphael
Susan

Now suppose that in 2020 the price of beans was $2 and the price of rice was $4.80.

In this case, inflation was

Indicate whether Raphael and Susan were better off, worse off, or unaffected by the changes in prices.

	Better Off	Worse Off	Unaffected
Raphael
Susan

Now suppose that in 2020, the price of beans was $2 and the price of rice was $1.60.

In this case, inflation was

Indicate whether Raphael and Susan were better off, worse off, or unaffected by the changes in prices.

	Better Off	Worse Off	Unaffected
Raphael
Susan

What matters more to Raphael and Susan?

The relative price of rice and beans

The overall inflation rate

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