With an annual inflation of 3.5%, prices will double in _____ years, and if inflation increases to 10%, prices will double in _______ year(s).
A) 20; 7
B) 17; 20
C) 35; 1
D) 2; 4

Question

Quizplus · Accepted Answer

To find how long it takes for prices to double with a given inflation rate, we can use the rule of 72. The rule of 72 states that the number of years it takes for an investment to double is approximately 72 divided by the annual rate of return. In this case, we are looking at inflation, so we can use the same formula.

For an inflation rate of 3.5%, we can calculate:

72 / 3.5 = 20.57

So it will take approximately 20.57 years for prices to double. Therefore, option A is incorrect.

For an inflation rate of 10%, we can calculate:

72 / 10 = 7.2

So it will take approximately 7.2 years for prices to double. Therefore, option B is correct.

Option C is incorrect because a 3.5% inflation rate would take significantly longer than 35 years to double prices.

Option D is incorrect because a 3.5% inflation rate would take much longer than 2 years to double prices, and even at a 10% inflation rate, prices would not double in only 4 years.

With an Annual Inflation of 3