Susan Webster deposits $1000 for a year in a bank account that pays an annual interest rate of 4 per cent.If the inflation rate is 6 per cent, then Susan's purchasing power has approximately:

Question

Quizplus · Accepted Answer

The nominal interest rate Susan receives is 4%. However, when accounting for inflation, the real interest rate is -2% (4% - 6% inflation). This means that the purchasing power of Susan's money has actually decreased by 2%. Therefore, the correct answer is option B: fallen by 2%.

Susan Webster Deposits $1000 for a Year in a Bank