. increasing prices erode the purchasing power of the dollar. It is interesting to compute what goods would have cost at some point in the past after adusting for inflation. Go to http:/minneapolisfed.org/index.cfm. What would a car that cost $22,000 today have cost the year that you were born? 1969 is the year to use!
3. One of the points made in this chapter is that inflation erodes investment returns. Go to www.moneychimp.com/articles/econ/inflation_calculator.htm and review how changes in inflation alter your real return. What happens to the difference between the adjusted value of an investment compared to its inflation-adjusted value as
a. inflation increases?
b. the investment horizon lengthens?
c. expected returns increase?
(enclosed is an excellent paper and then there is mine that needs help!)
The Critical Thinking Question ASSIGNMENT HERE IS: Link the recent decision of the Fed via the FOMC (Federal Open Market Committee) Action with the inflation information learned from answering the 2 questions above from the text.
Specifically, what effect does the recent FED ACTION have on the Value of the US Dollar and the US ECONOMY.
HINT: An increase in prices decreases the purchasing power of the Dollar, relatively speaking. An increase in the money supply in the economy decreases the purchasing power of the US Dollar. Now put the pieces together and tell me what you have learned.
The paper should be 5 pages in length, with 5 references. The format is of your choosing however, please create a WORD document and send it via the Dropbox site.
The 30 points will come from:
10 pts for content, 10 pts for using the websites and noting economic concepts of interest, and 10 points for using these concepts and compiling your thoughts on the issue (Question Assignment)
Increasing prices erode the purchasing power of the dollar. It is interesting to compute what goods would have cost at some point in the past after adjusting for inflation. Go to http://minneapolisfed.org/index.cfm. What would a car that cost $22,000 today have cost the year that you were born?
I was born in 1982, and the price of a $22,000 car today would have cost 9137.95 in 1982 according to http://minneapolisfed.org/index.cfm.
The same calculation comes out differently at the United States Bureau of Labor Statistics where it is calculated that the same care in 1982 that costs $22,000 today would have cost me $9215.25 in 1982.
According to CoinNews, I would also be paying $9215.25
According to USInflationCalculator.com, I would be paying $9174.31.
3. a. It is amazing that between 1900 and 2011, $1 has the same purchasing power of $28.57, making the average annual inflation at 3.04%.. This would mean that if I invested $100 dollars in 1900, the inflation alone would reduce the interest by $2857. The interest rate in the investment had better be greater than 3.04% if I were to make any profit. If inflation increases, the interest on the investment needs to rise higher to make a profit. If inflation increases, the investment will be diminished faster.
b. If the investment horizon increases, then as long as the earned interest is greater than the inflation rate, then a profit can be made. However, if nothing else changes, the investment will be greatly harmed over time as the horizon increases.
c. As expected returns increase, the investment is better as the inflation is being outrun by the increase in returns.