Suppose the inflation rate in a country is 1% per month.How many years will it take for the purchasing power of $1 today to be cut in half?
A)11.62
B)9.20
C)6.12
D)5.81

Question

Quizplus · Accepted Answer

To find the number of years it takes for the purchasing power of $1 to be cut in half at a 1% monthly inflation rate, we use the rule of 70 (or 72 for simplicity in some cases). The rule of 70 is a way to estimate the number of years it takes for a quantity to halve given a constant annual percentage change. The formula is 70 / annual rate of inflation. However, since the inflation rate given is monthly, we first annualize it: 1% monthly inflation equals 12% annual inflation. Then, we apply the rule of 70: 70 / 12 = 5.83 years. The closest answer provided is 5.81 years (D).

Suppose the Inflation Rate in a Country Is 1% Per