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 4 % , how long is it until purchasing power is cut in half?
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 4 % , 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.
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 A 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
Answer to Problem 62AYU
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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