Sure, let's break this down step-by-step.
### Understanding Inflation
What do you understand by the term 'Inflation'?
Inflation refers to the rate at which the general level of prices for goods and services rises, and subsequently, the purchasing power of currency falls. In simpler terms, it means that over time, you will need more money to buy the same item due to the increase in prices.
### Personal Experience with Inflation
How do you experience 'Inflation' in your own life?
You might notice inflation in your daily life through the gradual increase in the cost of items you regularly purchase, such as groceries, fuel, and utilities. For instance, if a loaf of bread costs you [tex]$1.00 last year and now it costs $[/tex]1.10, you're experiencing a 10% inflation in the price of bread. This indicates that the purchasing power of your money has decreased.
### Calculating the New Cost After Inflation
If a product cost R10 last year and the inflation rate was 5% what would that mean?
This means that the price of the product increases by 5% due to inflation. To understand the new cost, we need to calculate both the increase amount and then add it to the initial cost.
How much would the product cost after the 5% increase? (show your working)
Let's calculate the new cost step by step:
1. Initial Cost:
The initial cost of the product is R10.
2. Inflation Rate:
The inflation rate is 5%.
3. Increased Amount:
To find the increased amount, we calculate 5% of the initial cost.
[tex]\[
\text{Increased Amount} = \text{Initial Cost} \times \text{Inflation Rate}
\][/tex]
Substituting the values:
[tex]\[
\text{Increased Amount} = 10 \times 0.05 = 0.5
\][/tex]
4. New Cost:
The new cost of the product is the initial cost plus the increased amount.
[tex]\[
\text{New Cost} = \text{Initial Cost} + \text{Increased Amount}
\][/tex]
Substituting the values:
[tex]\[
\text{New Cost} = 10 + 0.5 = 10.5
\][/tex]
Therefore, after a 5% increase due to inflation, the new cost of the product would be R10.50.
