Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 1.7 percent.At the end of the year,Corey has
A)$17 more in his account,and his purchasing power has increased by $10.
B)$30 more in his account,and his purchasing power has increased by $50.
C)$40 more in his account,and his purchasing power has increased by $33.
D)$50 more in his account,and his purchasing power has increased by $33.

Question

Quizplus · Accepted Answer

The interest rate of the savings account is 5 percent, so Corey's account has grown to $1,050 ($1,000 + 0.05 x $1,000) at the end of the year.
However, due to inflation, the value of money has decreased by 1.7 percent. This means that Corey's purchasing power has decreased by 1.7 percent.
To calculate Corey's actual purchasing power at the end of the year, we need to subtract the inflation rate from the interest rate: 5% - 1.7% = 3.3%
So, Corey's actual increase in purchasing power is $1,050 x 3.3% = $34.65
Therefore, Corey has $50 more in his account ($1,050 - $1,000) and his purchasing power has increased by $34.65. The closest answer choice is D.

Corey Deposits $1,000 in a Savings Account That Pays an Annual