Suppose the nominal interest rate is 10 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 6 percent. At the end of the year, you have earned:
A) a real rate of return of 4 percent.
B) an increase in your purchasing power.
C) a nominal increase in your savings of $100.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

The nominal interest rate is 10%, and inflation is 6%. So, the real rate of return is 10% - 6% = 4%. This means that your purchasing power has increased by 4%. You have also earned a nominal increase in your savings of $100.

Suppose the Nominal Interest Rate Is 10 Percent Annually, and You