Question

The inflation rate of the U.S. dollar is 3.1 percent. what this means is that every year, prices increase by 3.1 percent. If a paperback book costs $1.98 three years ago, what does it cost now?

Answer 1

Due to inflation, the cost of goods at any time t is calculated through the equation,
F = P x (1 + r)^n
Substituting the values given above,
F = ($1.98) x (1 + 0.031)^3 = 2.1699
Therefore, the paperback book costs approximately $2.17 now.