Business, 25.04.2020 00:51 ADKREBS

Consider the effects of inflation in an economy composed of only two people: Larry, a bean farmer, and Megan, a rice farmer. Larry and Megan both always consume equal amounts of rice and beans. In 2016 the price of beans was $1, and the price of rice was $4.

Suppose that in 2017 the price of beans was $2 and the price of rice was $8.

Inflation was.

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

Better Off

Worse Off

Unaffected

Larry
Megan
Now suppose that in 2017 the price of beans was $2 and the price of rice was $4.80.

In this case, inflation was.

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

Better Off

Worse Off

Unaffected

Larry
Megan
Now suppose that in 2017, the price of beans was $2 and the price of rice was $1.60.

In this case, inflation was.

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

Better Off

Worse Off

Unaffected

Larry
Megan
What matters more to Larry and Megan?

The relative price of rice and beans

The overall inflation rate

Answers: 2

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Consider the effects of inflation in an economy composed of only two people: Larry, a bean farmer, a...

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