Abjihit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abjihit withdraws his $105. If inflation was 2 percent during the year the money was deposited, then Abjihit's purchasing power has increased by 3 percent.

Question

Quizplus · Accepted Answer

The real interest rate, which accounts for inflation, is the nominal interest rate (5%) minus the inflation rate (2%), resulting in a 3% increase in purchasing power.

Abjihit Deposits $100 in a Bank Account That Pays an Annual