Question

Assume the rate of inflation is 5​% per year for the next 2 years. What will be the cost of goods 2 years from​ now, adjusted for​ inflation, if the goods cost ​$280.00 ​today?

@Jimthompson5910

Answer 1

The equation for inflation is
A = P*(1+r)^t
which is an exponential growth equation (if r > 0). If r < 0, then we have deflation.

where...
A = final price after t years
P = initial starting price
r = rate of inflation in decimal form
t = number of years

In this case,
A = unknown (we're solving for this)
P = 280 is the starting price
r = 0.05 is the decimal form of 5%
t = 2 years

We will plug these three pieces of info into the formula to get...
A = P*(1+r)^t
A = 280*(1+0.05)^2
A = 280*(1.05)^2
A = 280*(1.1025)
A = 308.70

Answer: 308.70 dollars