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After Completing This Chapter...
The student should be able to:
· Describe inflation, explain how it happens, and list its effects on purchasing power.
· Define real and actual dollars and interest rates.
· Conduct constant dollar and the current dollar analyses.
· Define and utilize composite and commodity-specificprice indexes.
Cash Flows That Inflate at Different Rates xiv CONTENTS
Different Inflation Rates per Period
·Incorporate the effects of inflation in before-tax and after-tax calculations..
·Developspreadsheetsto solveengineeringeconomyproblems that incorporatethe effects
of inflation and price change.
QUESTIONS TO CONSIDER
- Flared jeans are all the rage these days. The Gap currently sells them for about $49.50
a pair. Flares were also in fashion back in the 1960s. Based on the BLS formula, what
would a similar pair have sold for in 1967?
- Some things have come down in price since the mid-1960s.Televisionsets, for instance.
What are some others?
.3. Many of the products we commonly use today, such as cell phones and personal com-
puters, didn't even exist in the 1960sconsumer market. How can this be inc1!}dedwhen
calculating inflation over time?
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