1. Suppose the buying power of the dollar decreases by 6.7% this year. What is the rate of inflation this year?
a) 7.6%
b) 7.2%
c) None of the above.
1/(1+r) = 1-.067 = .933
1+r = 1.0718
r = 7.2%
To calculate the rate of inflation, you can use the formula:
Rate of Inflation = (Buying Power Change / Initial Buying Power) * 100%
In this case, the buying power of the dollar has decreased by 6.7%. Therefore, the buying power change is -6.7%.
To find the rate of inflation, you need to divide the buying power change (-6.7%) by the initial buying power. However, the initial buying power is not given in the question. Without the initial buying power, it is not possible to calculate the exact rate of inflation.
Therefore, the correct answer is c) None of the above because the necessary information is missing.
To determine the rate of inflation, you'll need to calculate the percentage decrease in the buying power of the dollar.
The formula to calculate the rate of inflation is:
Rate of Inflation = (Change in Price / Original Price) * 100
In this case, the change in price is given as a percentage decrease of 6.7%. So, the change in price would be -6.7%.
Now, you can substitute these values into the formula:
Rate of Inflation = (-6.7% / 100%) * 100
Simplifying this expression, we get:
Rate of Inflation = -6.7%
Therefore, the correct answer is:
c) None of the above, as the rate of inflation this year is -6.7%.