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Chapter 9: Q. 37 (page 244)

Rosalie the Retiree knows that when she retires in 16years, her company will give her a one-time payment of \(20,000. However, if the inflation rate is 6%per year, how much buying power will that \)20,000have when measured in today鈥檚 dollars?

Short Answer

Expert verified

Purchasing power will be$7874after16years when measured in today's dollars.

Step by step solution

01

Step 1. Meaning of inflation.

The inflation rate is a general and ongoing rise in the price levels in an economy.

02

Step 2. Finding the purchasing power after 16 years. 

Let the price level be 100.

Inflation rate is 6%.

Price level after 16years will be:

localid="1645902898978" =(1+6100)16脳100=(106100)16脳100=(1.06)16脳100=2.54脳100=254

The purchasing power of $20,000after 16years will be:

=$20,0002.54=$7874

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