Chap_14 - Then-current dollars Use inflated cash flows Use...

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IE 3125  Engineering  Economic Analysis Chapter 14 Inflation
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Inflation See history (text p. 455) Related to average price increases in  goods Increase in price without increase in  value
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Interest Rates and Inflation The  inflation rate (f) modifies the  real interest rate (i’) to give the  combined interest rate (i) ( 29 ( 29 f i f i i f i i + + = + + = + 1 1 1
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Analysis Under Inflation Current value approach
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Unformatted text preview: Then-current dollars Use inflated cash flows Use modified interest rate (i) Constant value approach Constant dollars (single year) Use deflated cash flows Use real interest rate (i) Conclusions Across-the-board inflation does not affect economic decisions Single commodity escalation does !...
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This note was uploaded on 10/14/2009 for the course EECS 353 taught by Professor Sahakian during the Winter '05 term at Northwestern.

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Chap_14 - Then-current dollars Use inflated cash flows Use...

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