Question

A family spends $39,000 on living expenses. With an annual inflation rate of 4 percent, they can expect to spend approximately _______ in one year. Use Exhibit 1-A. (Round time value factors to 3 decimal places and final answer to the nearest dollar amount.)

Answer 1

Answer:

$40,560.00

Explanation:

Inflation is the general increase in the average price level . Inflation increases the prices of good and services leading to a reduction in the purchasing power of money.

To determine the equivalent living cost for the family in a year's time we add the expected increase in the cost of living as result of inflation to the original cost of living

Expected cost of living after inflation = (100+4)% ×  $39,000

                                                               = $40,560.00