Question

the rate of inflation measures the percentage increase in the price of consumer goods. the rate of inflation in the year 2020 was 1.2% per year. to get a sense of what this rate would mean in the long run, lets suppose that it persists through 2040. what would be the cost in 2021 of an item that costs $100 in 2020? (enter your answer to two decimal places.) the cost would be $ dollars in 2021.

Explanation:

Step1: Identify the inflation - rate formula

The formula for calculating the new price with inflation is $P_{new}=P_{old}(1 + r)$, where $P_{old}$ is the old price, $r$ is the inflation rate.

Step2: Substitute the given values

We know that $P_{old}=\$100$ and $r = 0.012$ (since $1.2\%=0.012$). Then $P_{new}=100\times(1 + 0.012)$.

Step3: Calculate the new price

$P_{new}=100\times1.012=\$101.20$.

Answer:

$101.20$