In Newtopia, inflation runs at 15%. A home entertainment unit currently sells for $2000.
A) How much would you expect it to cost in a year`s time?
B) How much would you expect it to cost in two years time?
A. C = 0.15 * 2000 = $300.
B. C = 0.15 * 2 * 2000 = $600.
To answer these questions, we need to take into account the inflation rate of 15% in Newtopia. Here's how you can calculate the expected cost of the home entertainment unit in a year and in two years' time:
A) To calculate the expected cost of the home entertainment unit in a year's time, you can use the formula:
Expected cost = Current cost + (Current cost * Inflation rate)
In this case, the current cost is $2000 and the inflation rate is 15% or 0.15. Plugging these values into the formula:
Expected cost = $2000 + ($2000 * 0.15)
Expected cost = $2000 + $300
Expected cost = $2300
So, you would expect the home entertainment unit to cost $2300 in a year's time.
B) To calculate the expected cost of the home entertainment unit in two years' time, you repeat the process using the expected cost from the previous calculation as the new current cost. Let's calculate it:
Expected cost in year 1 = $2000 + ($2000 * 0.15)
Expected cost in year 1 = $2000 + $300
Expected cost in year 1 = $2300
Expected cost in year 2 = Expected cost in year 1 + (Expected cost in year 1 * Inflation rate)
Plugging in the values:
Expected cost in year 2 = $2300 + ($2300 * 0.15)
Expected cost in year 2 = $2300 + $345
Expected cost in year 2 = $2645
So, you would expect the home entertainment unit to cost $2645 in two years' time.