Question

assume the rate of inflation is 7% 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 $430.00 today? in 2 years the same goods will cost approximately ____(round to the nearest cent)

Answer 1

Step-by-step explanation:

The cost of the goods can be calculated using the following exponential equation:

`C=C_0(1+r)^t`

Where C0 is the cost of the goods today, r is the rate of inflation per year and t is the number of years.

We use this equation because inflation is the rate at which the cost of goods grows every year.

So, replacing C0 by $430, r by 0.07, and t by 2, we get:

`\begin{gathered} C=430(1+0.07)^2 \\ C=430(1.07)^2 \\ C=430(1.1449_{}) \\ C=\text{ \$492.307} \end{gathered}`

Therefore, in 2 years the same goods will cost approximately $432.31