The Bank of England has an inflation calculator website that uses the UK price index to show how the cost of goods and services has changed since 1750. The website reveals that something that cost £10,000 in 1920 cost £7984 in 1940. What was the average annual inflation rate over that 20-year time period in the early-to-mid 20th century?
What will be an ideal response?
7984 = 10,000(1 + f)²?
(1 + f)²? = 0.7984
(1 + f) = 0.7984)^0.05
f = -0.0112 (-1.12% per year)
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