# Step 1: Calculate the Current Price Level The inflation rate tells us how much prices increase over a period. Last year's price level was 140, and this year's inflation rate is 7%. \[ \text{Current Price Level} = \text{Last Year's Price Level} \times (1 + \frac{\text{Inflation Rate}}{100}) \] \[ = 140 \times (1 + .07) = 140 \times 1.07 = 149.8 \] **Explanation:** The price level increased by 7% from last year, so we multiply last year's price by 1.07 to find this year's price level. --- # Step 2: Determine the Change in Purchasing Power of Money Purchasing power is inversely related to the price level. To find the change: \[ \text{Change in Purchasing Power} = \frac{\text{Last Year's Price Level}}{\text{Current Price Level}} \] \[ = \frac{140}{149.8} \approx .935 \] To express this as a percent change: \[ \text{Percent Change} = (.935 - 1) \times 100\% = -6.5\% \] **Explanation:** Purchasing power has decreased because prices increased. The ratio shows that money now buys about 6.5% less than last year. --- # Final Answers - **Current Price Level:** $149.8$ - **Change in Purchasing Power:** Decreased by approximately $6.5\%$