Suppose your bank pays you 6% interest per year on your savings account.If prices increase by 3% per year over that time,approximately how much nominal value do you gain by keeping $100 in the bank for a year?

Question

Quizplus · Accepted Answer

Nominal value is the value of something in current dollars without adjusting for inflation. In this case, if you keep $100 in the bank for a year at a 6% interest rate, you gain $6 in interest. However, if prices increase by 3%, the purchasing power of that $106 at the end of the year is the same as the purchasing power of $103 at the beginning of the year. Therefore, the nominal value gained by keeping $100 in the bank for a year is $6.

Suppose Your Bank Pays You 6% Interest Per Year on Your