how do i calculate the rate of inflation for a big mac from its 1968 cost of $.49 to its 2005 cost of $2.90?

Answer 1

Between 1968 and 2005, the price has risen by a factor of 6.44 (ie 2.90/0.45). To get an annual rate, you need to work out what rate of increase over 37 years gives an increase of 6.44. In algebra, this is:

(1+i)^37=6.44 <=> (1+i) = 6.44^(1/37)=1.0516

<=> i = 0.0516

where i is the average annual rate of inflation.

Therefore the answer is 5.2%