Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year. If the actual inflation rate is _____, it can be argued that _____ is/are better off.

Question

Quizplus · Accepted Answer

If the actual inflation rate is below 3%, Adrianna is better off because the real interest rate (nominal interest rate minus inflation rate) she earns on the bonds will be higher than expected, increasing her purchasing power.

Expecting the Inflation Rate to Be 3%, Adrianna Decides to Put