Question

Inflation causes things to cost more, and for our money to buy less (hence your grandparents saying "In my day, you could buy a cup of coffee for a nickel"). Suppose inflation decreases the value of money by 2% each year. In other words, if you have $1 this year, next year it will only buy you $0.98 worth of stuff. How much will $100 buy you in 10 years?

Answer 1

$81.71

Step-by-step explanation:

Inflation is a persistent rise in inflation.

Disinflation is a fall in the rate of inflation.

Inflation rate = 2% = 0.02

Amount = $100

Time = 10 years

Price in n years = Amount × (1 - Inflation rate)ⁿ

The reduced amount = $100 × ( 1 - 0.02 )¹⁰

=$81.71