What is the true purchasing power one year from now of $1,000 in a savings account,if it is earning 2 percent APY and inflation is 3 percent?
A)$1,000.00
B)$1,020.00
C)$990.00
D)$1,010.00

Question

Quizplus · Accepted Answer

The inflation rate of 3% means that the purchasing power of money decreases by 3%, meaning that the buying power of $1,000 is effectively $970 (after accounting for inflation). The 2% APY in a savings account means that the value of the money will increase by 2%, bringing it to $990. Therefore, the true purchasing power of $1,000 in a savings account, after accounting for inflation, one year from now is $990.

What Is the True Purchasing Power One Year from Now