Suppose that over the past year,the real interest rate was 3 percent and the inflation rate was 1 percent.It follows that
A)the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 3 percent.
B)the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 4 percent.
C)the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 2 percent.
D)the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 3 percent.

Question

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate, which is 4% (3% + 1%). Therefore, the dollar value of savings increased by 4%, and the purchasing power increased by the real interest rate of 3%.

Suppose That Over the Past Year,the Real Interest Rate Was