The Consumer Price Index is increasing at a rate of 6% per year. By what factor will prices increase in 5 years? Use the approximate doubling time formula (rule of 70).

Question

Round to two decimal places.

Answer 1

According to the Rule of 70, we can approximate the doubling time by dividing 70 by the annual growth rate.

In this case, the annual growth rate is 6%, so the doubling time is approximately 70/6 = 11.67 years.

Since we are interested in the factor by which prices will increase in 5 years, we need to find how many doubling times pass in 5 years.

5 years / 11.67 years per doubling = 0.428 doubling times

Now, we can find the factor by which prices will increase by using the formula for doubling time:

Factor = 2^0.428 = 1.32

Therefore, prices will increase by a factor of 1.32 in 5 years.