Inflation Problems 57-62 require the following discussion. 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 average inflation rate is 2 % , how long is it until purchasing power is cut in half?
Inflation Problems 57-62 require the following discussion. 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 average inflation rate is 2 % , how long is it until purchasing power is cut in half?
Solution Summary: The author explains that inflation is a term used to describe the erosion of the purchasing power of money.
Inflation
Problems 57-62 require the following discussion.
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 average inflation rate is
, how long is it until purchasing power is cut in half?
Expert Solution & Answer
To determine
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 average inflation rate is , how long is it until purchasing power is cut in half?
Answer to Problem 61AYU
Solution:
years
Explanation of Solution
Given:
Calculation:
Taking on both sides
Therefore, the purchasing power is cut in half after years.
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