Question

The average cost of a gallon of gas was $0.80 per gallon in 1995. In 2011, the average cost of a gallon of gas is $3.50. What is the average inflation rate for the period 1998-2011?

9. The average cost of a gallon of gas was $0.80 per gallon in 1995. In 2011, the average cost of a gallon of gas is $3.50. What is the average inflation rate for the period 1998-2011?

Answer 1

Let's say the inflation rate is r

Hence, price after 13 years if price is now at 0.8=0.8(1+r)¹³

Hence,0.8(1+r)¹³=3.5

Or, (1+r)¹³=3.5/0.8

Or 1+r=(3.5/0.8)^1/13

Or, r=(3.5/0.8)^1/13-1=0.120226(approx)

Hence average inflation rate=12.02%

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