Assume the rate of inflation is 4% per year for the next two years. What will be the cost of goods 2 years from now, adjusted for inflation, if the goods coast $470.00 today.
2007-10-12 06:50:02 · 7 answers · asked by Anonymous in Science & Mathematics ➔ Mathematics
this year : 470
470*.04= 18.8
18.8+470= 488.80
year one: 488.80
488.80*.04 = 19.552
19.552+488.80 = 508.352
year two: 508.352
2007-10-12 06:55:54 · answer #1 · answered by cleatus 1 · 1⤊ 0⤋
The key phase is "adjusted for inflation" which normally means you want to eliminate the effect of inflation on the price. Since there's no indication that the price of the goods may increase or decrease due to normal market forces, so we have to assume inflation is the ONLY component of any price increase. Therefore, those goods that cost $470 today will cost $470 "adjusted for inflation" two years from now, 10 years from now, and a million years from now, regardless of the rate of inflation.
Prices are adjusted for inflation to see if an item has actually increased or decreased over a certain period of time. For example, say an item costs $100 now, $103 one year from now, and inflation was 10%. It looks like the item increased by $3. But if we adjust the future price for inflation, it actually costs (100/110)*103, or $93.64 in today's money. In other words, if it had started out at $93.64 today, it will cost $103 one year from now due to 10% inflation. But since it started out at $100, the item actually decreased by $6.36 over that one year period.
If the question said the price 2 years from now will be $470, and asked what is today's price that is equal to that future price "adjusted for inflation", you have to remove two years at 4% off of $470. But, that's not what the question asked.
The others gave you the price WITH inflation, which is not the usual meaning of "adjusted for inflation". If that's what the person asking the question wants, the problem is badly worded. It should be asking "What will be the cost of the goods 2 years from now, INCLUDING inflation, if the goods cost $470.00 today".
2007-10-12 07:07:05 · answer #2 · answered by David H 2 · 1⤊ 0⤋
cost today=470.00
after 1 year, inflation = 470(4/100)=18.80
470+18.80=488.80
after 2 years, inflation = 488.80(4/100)=19.55
488.80+19.55=$508.35
2007-10-12 06:57:18 · answer #3 · answered by cidyah 7 · 1⤊ 0⤋
Gladys G's answer is correct for annually compounded inflation. If the inflation is adjusted in smaller increments, you will have to adjust the formula accordingly.
2007-10-12 07:00:06 · answer #4 · answered by james p 5 · 1⤊ 0⤋
470 * 1.04 * 1.04 = 508.35
You multiply it by itself (1) + the percent increase (.04) once for each year.
The statment can also be written as such:
470 * (1.04)^n = x
where n is equal to the number of years.
2007-10-12 06:55:20 · answer #5 · answered by TheOtterRules 2 · 1⤊ 0⤋
470(1.04)^2 = $508.35
2007-10-12 06:55:44 · answer #6 · answered by ironduke8159 7 · 1⤊ 0⤋
470*(1.04)^2 =$508.35
2007-10-12 06:55:56 · answer #7 · answered by santmann2002 7 · 1⤊ 0⤋