Question

suppose a bag if groceries costs $14.50 this year and the average annual rate of inflation over the last five years is 3%. if the inflation rate continues to be 3% per year, how much will the same bag of groceries cost 2 years from now? (round to the nearest $0.10)

Answer 1

Let:

Op = Original price = $14.50

r = rate of inflation = 3% = 0.03

After the first year, the cost of the bag of groceries will be:

`\begin{gathered} P1=Or+r\cdot Or \\ P1=14.50+0.03\cdot14.50=14.935 \end{gathered}`

After the 2nd year, the cost will be:

`\begin{gathered} P2=P1+rP1 \\ P2=14.935+0.03\cdot14.935=15.38 \end{gathered}`