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Banking on Inflation

Banking on Inflation. Understanding Inflation http://www2.scholastic.com/content/collateral_resources/pdf/a/Actuarial_Famact2_BankingonInflation.pdf. INFLATION: What is it?. Inflation is: a general increase in the price of goods and services. Inflation from 1960 to 2005.

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Banking on Inflation

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  1. Banking on Inflation Understanding Inflation http://www2.scholastic.com/content/collateral_resources/pdf/a/Actuarial_Famact2_BankingonInflation.pdf

  2. INFLATION: What is it? Inflation is: a general increase in the price of goods and services.

  3. Inflation from 1960 to 2005

  4. Example: Hurricane Andrew Hurricane Andrew and Inflation: “Hurricane Andrew affected Florida, Lousiana, and Mississippi in 1992. In 1992, the estimated cost of the hurricane was $15.5 million. Because of inflation, that amount was equal to approximately $21.6 million in 2005.”

  5. Finding Percent of Change • Take the difference between the 2 prices. • Divide by the original amount. This will give you a decimal answer. • To change to a percent multiply by 100.

  6. Question 1: • How much more did a house cost in 2000 than in 1970? • $207,000 - 26,600 = $180,400. • What’s the percentage increase? • 180,400/26,600 = 6.78 * 100 = 678%

  7. Questions 2 • How did the price of gas change from 1980 to 1990? • $1.16 - $1.25 = -.09, the price decreased by $.09. • What’s the percentage change? • .09/1.25 = .072 * 100 = 7.2%

  8. Question 3 • What did a gallon of milk and a dozen eggs cost in 1960? • Milk ($.49) and Eggs ($.57), Total = $1.06 • In 2005? • Milk ($3.74) and Eggs ($1.35), Total = $5.09 • By what percentage did the cost increase? • $4.03/$1.06 = 3.80 * 100 = 380%

  9. Inflation since 2005 Inflation tables from 2000 to currently can be seen on the below website. • http://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp • Consumer Price Index: • ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

  10. Question 4 • Based on inflation, what would you estimate the price of a gallon of gas will be when you get your driver’s license? • First determine what year you will get your license, then review the percent of inflation we noticed on the previous website and make your best determination. • What, besides inflation, might affect the price? • Availability of gas • Demand for gas • Population increasing or decreasing • Hybrid cars • United States relationship with the middle east.

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