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Problem 7-09

Inflation is a general increase in prices and may be measured by the Consumer Price Index (CPI). Use Appendix A to answer the questions.

1. In Year 1 the CPI was 100; 20 years later, it was 226. What was the annual rate of inflation? Round your answer to the nearest whole number. %

2. Nancy and Pam both currently earn $110,000. If the annual rate of inflation is 5 percent, how much must each earn after twelve years to maintain their purchasing power? Round your answer to the nearest dollar. $

3. Your parents bought a home for $60,000 in Year 1 and sold it in Year 31 for $240,000. What was the annual rate of price increase over the 30 years? Round your answer to the nearest whole number. %