ENGR 3360U Winter 2014 Unit 14: Inflation
ENGR 3360U Winter 2014 Unit 14: Inflation
ENGR 3360U Winter 2014 Unit 14: Inflation
Unit 14
Inflation
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-01
Change Record
2014-I-01 Initial Creation
17-2
2013-IV-01
Course Outline
1.
2.
3.
4.
5.
6.
7.
8.
9.
17-3
Engineering Economics
General Economics
1.
Microeconomics
2.
Macroeconomics
3.
Money and the Bank of
Canada
Engineering Estimation
Interest and Equivalence
Present Worth Analysis
Annual Cash Flow
Rate of Return Analysis
Picking the Best Choice
Other Choosing Techniques
2013-IV-01
Inflation
Inflation depends on:
Money supply
Exchange rates
Cost-push
Demand-pull
Inflation
Inflation rate (f)
Real dollars R$
Example 14.1
A golfer wants to invest her earnings in a
bank. The bank pays 5.5% and inflation is
2%. What is her real increase in purchasing
power?
17-9
2013-IV-01
Example 14.1
A golfer wants to invest her earnings in a
bank. The bank pays 5.5%% and inflation is
2%. What is her real increase in purchasing
power?
i = i + f + if and i = (i-f)/(1+f)
i = (0.055-0.02)/(1+0.02) = 0.034 or 3.4%
17-10
2013-IV-01
Relationships
14.3 Analysis
Two ways to approach economic analysis:
Composite indexes
After-tax calculations
Summary
Inflation
i = i + f + if
Summary, contd.
Cash flows are expressed as either Actual or
Real Dollars
Market Rate is used for Actual Dollars.
Real Rate is used for Real Dollars.
Price Indexes show the historical effect of
inflation on the index category.