01:640:106- Final Exam Guide - Comprehensive Notes for the exam ( 64 pages long!)

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Definition: inflation is the tendency of prices to rise over time. An inflation rate of, say, 25% would mean that prices would double roughly every three years. In the short term: inflation running at a 3. 5% average is hardly even noticeable. In the long term: the cumulative effect of compounding inflation can really add up. For example, assuming that a 3. 5% rate of inflation continued for the next 40 years, a can bar that costs 65 cents would cost a whopping . 57. The fact is that no one knows what the future holds, for inflation rates or anything else. While we can"t pretend inflation does not exist, we also can"t know in advance what will happen, either. Any projections we make will have to rest on assumptions, and so our predictions are just educated guesses calculated from other educated guesses.

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