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14 September, 08:54

Since 1972 the US. inflation rate has averaged 4.8 % per year. Use the approximate doubling time formula to estimate the doubling time of prices caused by inflation.

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  1. 14 September, 09:17
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    14 3/4 years

    Step-by-step explanation:

    Let's assume compound inflation. The appropriate formula for that is:

    A = P (1 + r) ^t.

    If we represent current prices by P, then double that would be 2P:

    2P = P (1 + 0.048) ^t Find t, the time required for prices to double.

    Then:

    2 = 1.048^t

    Taking the natural log of both sides, we get:

    ln 2 = t·ln 1.048, so that:

    t = (ln 2) / (ln 1.048) = 14.78

    At 4.8 inflation, with annual compounding, prices will double in approx. 14 3/4 years.
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