Darla puts her money into a bank account that earns interest.One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.
A)The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.
B)The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.
C)The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
D)The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.

Question

Quizplus · Accepted Answer

The nominal interest rate is the percentage increase in the amount of money, which is 6 percent. The real interest rate is the percentage increase in the purchasing power of the money, which is 7.5 percent. The real interest rate is calculated as the nominal interest rate minus the inflation rate. Therefore, the inflation rate must be negative, specifically -1.5 percent, to result in a real interest rate of 7.5 percent.

Darla Puts Her Money into a Bank Account That Earns