Question

When the average price of an item increases from p1 to p2 over a period of n years, the annual rate of inflation r (in decimal form) is given by r=(p2p1)1/n−1. The average price of one pound of cheese increased from $0.22 in 1913 to $5.83 in 2013. What was the annual rate of inflation r? Write your answer in decimal form to the nearest thousandth.

Answer 1

The annual rate of inflation r is $0.013

Explanation:

Annual rate of inflation r = (p2p1)1/n-1 = p2p1/n-1

p2 = $5.83, p1 = $0.22, n = 2013 - 1913 = 100

r = $5.83 × $0.22/100 - 1 = $1.2826/99 = $0.013 (to the nearest thousandth)