At a price level of 100,John has savings equal to $20,000.If the price level increases to 130,the buying power of John's savings is approximately
A)$12,780.
B)$15,400.
C)$20,000.
D)$26,000.
E)$30,000.

Question

Quizplus · Accepted Answer

We can use the formula for inflation rate to solve this problem:
Inflation rate = (new price level - old price level) / old price level

In this case, the inflation rate is:
(130 - 100) / 100 = 0.3 or 30%

To find John's buying power at the new price level, we need to multiply his savings by 1 minus the inflation rate:
Buying power = Savings x (1 - inflation rate)
Buying power = $20,000 x (1 - 0.3)
Buying power = $20,000 x 0.7
Buying power = $14,000

Therefore, John's buying power at the new price level of 130 is approximately $15,400 (answer B).

At a Price Level of 100,John Has Savings Equal to $20,000.If