Question

y=100(0.96)^x is an equation that can be used to represent the purchasing power of $100 after x years of inflation. what is the rate of inflation used to make this calculation? ​

Answer 1

The equation y = 100(0.96)^x represents the purchasing power of $100 after x years of inflation, where the inflation rate is 1 - 0.96 = 0.04, or 4% per year.

To see why, note that the equation can be rewritten in the form:

y = 100 * (1 - 0.04)^x

which is equivalent to:

y = 100 * 0.96^x

This means that after one year of inflation, the purchasing power of $100 is reduced by 4% to $96, and after x years of inflation, the purchasing power is reduced by 4% for each year, leading to a reduction of 0.04^x of the original value.

Therefore, the rate of inflation used to make this calculation is 4% per year.