Tashonna puts money in a savings account at her bank, earning 4.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 2.5 percent. How has the amount of goods Tashonna can buy changed one year later?

Question

Quizplus · Accepted Answer

Tashonna's money grew by 4.5 percent due to interest, but because prices rose by 2.5 percent, the real increase in her purchasing power is the difference between these two rates, which is 2 percent more goods.

Tashonna Puts Money in a Savings Account at Her Bank