Ch14 - Ch 14 Inflation and Price Change Objectives Describe...

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Ch 14 Inflation and Price Change
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Objectives • Describe inflation, describe how it happens, and list its effects on purchasing power • Define real and actual dollar and interest rates • Conduct constant dollar and then current dollar analyses
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Objectives (cont.) • Define and use composite and commodity- specific price indexes • Develop and use cash flows that inflate at different interest rates and cash flows subject to different interest rates per period
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Meaning and Effect of Inflation • Inflation causes money to lose purchasing power • Inflation makes future dollars less valuable than present dollars • Deflation, the opposite of inflation, makes future dollars more valuable than present dollars but this rarely happens in today’s world • Inflation happens (it’s not important why it happens)
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Definitions for Considering Inflation in Engineering Economy Inflation rate ( f ): annual rate of increase in number of dollars needed to pay for the same amount of goods and services
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Ch14 - Ch 14 Inflation and Price Change Objectives Describe...

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