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1. The level of prices and the value of money Suppose the price level reects the number of dollars needed to buy a basket of goods containing one can of soda, one bag of chips, and one comic book. In year one, the basket costs $8.00. In year two, the price of the same basket is $100. From year one to year two, there is deflation v at an annual rate of 12.50% v . In year one, $40.00 will buy 5 v baskets, and In year two, $40.00 will buy 5.71 v baskets. This example Illustrates that, as the price level falls, the value of money rises v