The average annual inflation rate in the United States over the past 98 years is 3.37% and has a standard deviation of approximately 5% (Inflationdata). In 1980, the inflation rate was above 13%. If the annual inflation rate is normally distributed, what is the probability that inflation will be above 13% next year

2.68% probability that inflation will be above 13% next year

Step-by-step explanation:

Problems of normally distributed samples are solved using the z-score formula.

In a set with mean and standard deviation , the zscore of a measure X is given by:

The Z-score measures how many standard deviations the measure is from the mean. After finding the Z-score, we look at the z-score table and find the p-value associated with this z-score. This p-value is the probability that the value of the measure is smaller than X, that is, the percentile of X. Subtracting 1 by the pvalue, we get the probability that the value of the measure is greater than X.

In this problem, we have that:

If the annual inflation rate is normally distributed, what is the probability that inflation will be above 13% next year

This is the pvalue of Z when X = 13. So

has a pvalue of 0.9732

1 - 0.9732 = 0.0268

2.68% probability that inflation will be above 13% next year

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