Richard places $20,000 into a three-year CD that pays a 3% interest rate. Richard benefits the most if the inflation rate over the three-year period averages:

Question

Quizplus · Accepted Answer

Richard benefits the most from a 1% inflation rate because the real interest rate (interest rate after adjusting for inflation) is highest when inflation is lowest. At a 3% interest rate, if inflation averages 1%, the real value of his returns is maximized.

Richard Places $20,000 into a Three-Year CD That Pays a 3