Since last year, the price of gold has risen from $1100 to $1420. What annual inflation rate would leave the real price of gold unchanged over the last twelve months?
A) Approximately 29%
B) 40%
C) Approximately 71%
D) 320%
E) none of the above

Question

Quizplus · Accepted Answer

To find the real price of gold, we need to adjust for inflation. We can use the formula: Real Price = Nominal Price / (1 + Inflation Rate). We want to find the inflation rate that would make the real price of gold today the same as it was a year ago, when the nominal price was $1100. Plugging in the numbers, we get:

1420 = 1100 / (1 + Inflation Rate)

Solving for Inflation Rate, we get:

Inflation Rate = (1420 / 1100) - 1 = 0.2909 or 29.09%

Therefore, the correct answer is A) Approximately 29%.

Since Last Year, the Price of Gold Has Risen from $1100