Sue deposited $1,000 in an account paying 2 percent interest.The inflation rate is 5 percent.What is the buying power of the account after one year?

Question

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The account grows to $1,020 due to 2% interest ($1,000 * 1.02 = $1,020), but with a 5% inflation rate, its buying power decreases. To find the new buying power: $1,020 * (1 - 0.05) = $969, which is approximately $970.

Sue Deposited $1,000 in an Account Paying 2 Percent Interest