What would be the cost after 20 years of an item that costs $600 initially? (Round your answer to the nearest cent.)

Question

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 $600 initially? (Round your answer to the nearest cent.)

Answer 1

f(t) = a₁(r)^t, where a₁ = initial amount, r = rate, t = time

 

f(20) = 600(0.93)²⁰         7% decline is the same as 93% remains.

f(20) ≈ 600(0.2342)

f(20) ≈ 140.54