Suppose that over the past year,the real interest rate was 3 percent,the CPI was 126.2 at the beginning of the year,and the CPI was 129.5 at the end of the year.It follows that
A)the dollar value of savings increased at 5.6 percent,and the purchasing power of savings increased at 3 percent.
B)the dollar value of savings increased at 0.4 percent,and the purchasing power of savings increased at 3 percent.
C)the dollar value of savings increased at 3 percent,and the purchasing power of savings increased at 5.6 percent.
D)the dollar value of savings increased at 3 percent,and the purchasing power of savings increased at 0.4 percent.

Question

Quizplus · Accepted Answer

The nominal interest rate can be calculated using the formula: nominal interest rate = real interest rate + inflation rate. The inflation rate is ((129.5 - 126.2) / 126.2) * 100 = 2.62%. Thus, the nominal interest rate is 3% + 2.62% = 5.62%. Therefore, the dollar value of savings increased at approximately 5.6%, and the purchasing power increased at the real interest rate of 3%.

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