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15 April, 19:25

Assume the rate of inflation is 5 % per year for the next 2 years. What will be the cost of goods 2 years from now, adjusted for inflation, if the goods cost $280.00 today?

@Jimthompson5910

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  1. 15 April, 19:41
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    The equation for inflation is

    A = P * (1+r) ^t

    which is an exponential growth equation (if r > 0). If r < 0, then we have deflation.

    where ...

    A = final price after t years

    P = initial starting price

    r = rate of inflation in decimal form

    t = number of years

    In this case,

    A = unknown (we're solving for this)

    P = 280 is the starting price

    r = 0.05 is the decimal form of 5%

    t = 2 years

    We will plug these three pieces of info into the formula to get ...

    A = P * (1+r) ^t

    A = 280 * (1+0.05) ^2

    A = 280 * (1.05) ^2

    A = 280 * (1.1025)

    A = 308.70

    Answer: 308.70 dollars
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