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From 1929 through the early 1930s, the prices of consumer goods actually decreased. Economists call this phenomenon deflation. The rate of deflation during this period was about 7% per year, meaning that prices decreased by 7% per year. To get a sense of what this rate would mean in the long run, let's suppose that this rate of deflation persisted over a period of 20 years.

What would be the cost after 20 years of an item that costs $400 initially? (Round your answer to the nearest cent.)
$ ______

Sagot :

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Answer:

  $93.70

Step-by-step explanation:

The multiplier each year would be (1 -7%) = 0.93. After 20 years, the price would be multiplied by this value 20 times:

  cost = $400 × 0.93^20 ≈ $93.70

After 20 years of 7% deflation, the cost would be $93.70.

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