Suppose that inflation is 3% per year. This means the cost of an item increases by 3% each year. Suppose a jacket cost $150 in 2011. How long will it take for the jacket to cost $200 dollars?

Question

Quizplus · Accepted Answer

To find out how long it will take for the jacket to cost $200, we can use the formula for compound interest, which is also applicable for calculating inflation effects: $A = P(1 + r)^t$, where $A$ is the amount after time $t$, $P$ is the principal amount (initial amount), $r$ is the rate of increase (inflation rate), and $t$ is the time in years. Plugging in the values: $200 = 150(1 + 0.03)^t$. Solving for $t$ gives approximately 10 years.

Suppose That Inflation Is 3% Per Year