Inflation is a term used to describe the erosion of the purchasing power of money. For example, if the annual inflation rate is 3 % , then $ 1000 worth of purchasing power now will have only $ 970 worth of purchasing power in 1 year because 3 % of the original $ 1000 ( 0.03 × 1000 = 30 ) has been eroded due to inflation. In general, if the rate of inflation averages r per annum over n years, the amount A that $ P will purchase after n years is A = P ⋅ ( 1 − r ) n where r is expressed as a decimal. Inflation If the Inflation rate averages 2 % , how much will $ 1000 purchase in 3 years?
Inflation is a term used to describe the erosion of the purchasing power of money. For example, if the annual inflation rate is 3 % , then $ 1000 worth of purchasing power now will have only $ 970 worth of purchasing power in 1 year because 3 % of the original $ 1000 ( 0.03 × 1000 = 30 ) has been eroded due to inflation. In general, if the rate of inflation averages r per annum over n years, the amount A that $ P will purchase after n years is A = P ⋅ ( 1 − r ) n where r is expressed as a decimal. Inflation If the Inflation rate averages 2 % , how much will $ 1000 purchase in 3 years?
Solution Summary: The author explains that inflation is a term used to describe the erosion of the purchasing power of money.
To find:Inflation is a term used to describe the erosion of the purchasing power of money. For example, if the annual inflation rate is , then worth of purchasing power now will have only worth of purchasing power in 1 year because of the original has been eroded due to inflation. In general, if the rate of inflation averages per annum over years, the amount
that will purchase after years is where is expressed as a decimal. Inflation If the Inflation rate averages , how much will purchase in 3 years?
Expert Solution & Answer
Answer to Problem 58AYU
Solution:
Explanation of Solution
Given:
and
Calculation:
Therefore, the purchasing power of in 3 years is .
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