If inflation from year 1 to year 2 is r as a decimal, we express year-1 dollars in constant year-2 dollars using:
A)D "year-2 dollars" = D(1 + r)"year-1 dollars"
B)D "year-1 dollars" = D(1 - r)"year-2 dollars"
C)D "year-2 dollars" = D(1 - r)"year-1 dollars"
D)D "year-1 dollars" = D(1 + r)"year-2 dollars"

Question

Quizplus · Accepted Answer

When we want to express year-1 dollars in constant year-2 dollars, we want to increase the year-1 dollar value by the inflation rate to reflect the increase in general prices. Thus, we have to multiply the year-1 dollars by a factor of (1 + r) to get the equivalent value in year-2 dollars. Therefore, option D is the correct expression.

If Inflation from Year 1 to Year 2 Is R