Bus case 3

Please read the case carefully and solve the question 4 part A : Q. 4.    Assume that McDuff prevails in his negligence and/or strict liability lawsuits.  In determining the amount of damages he may recover for loss of earnings consider the following: McDuff’s medical condition is such that he is unable to ever work again; he was 53 years of age at the time of the injury and would have been expected to retire at the age of 65; his life expectancy at the time of the injury was 77 years of age; he is an employee of the United States Postal Service covered by a union contract projecting his wages to rise by 3% per year in real terms plus an annual Cost of Living Adjustment (COLA) equal to the rate of inflation; and his current annual gross salary is $48,000.

a.         Table 2 below contains the Consumer Price Index (CPI) for each of the past 10 years.  Determine the average annual percentage change in the CPI over the past 10 years.  Explain the meaning of this statistic.  What assumptions would have to be made about monetary policy in the next 12 years to assume the average annual percentage change in the CPI over the past 10 years can be used to predict future inflation rates?