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 Question from cassie, a student: In 1972, Bob could fill his car with gasoline at a cost of $3.00. In 2007 it cost him$45.00 to fill his car. From 1972 to 2007, what is the annual inflation rate for gasoline? How does this inflation rate change when you change the cost to $0.25 per gallon in 1972 to$3.20 per gallon in 2007?

Hi Cassie.

If you assume that the rate of inflation is constant (it isn't, but for the purposes of the question we assume it is), then the price rises each year by the inflation rate times the previous year.

So let r = the annualized inflation rate + 1.

Since you have 25 years, you are multiplying the original amount ($3) by r 25 times to get the later amount ($45).

So 3 x r25 = 45. This means r25 = 15. If you use your calculator, you can find r.

On my calculator, I type 25, then , then 15.

The second question is really the same as the first, but with different numbers.

Cheers,
Stephen La Rocque

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