Suppose prices increase by 3% per year.What nominal percentage return on your savings account would you require to get a 3% real return?
A) 0%
B) 3%
C) 6%
D) 9%

Question

Quizplus · Accepted Answer

To get a real return of 3%, we need to earn a nominal return that is equal to the inflation rate plus the real return. In this case, inflation is 3%, so to earn a real return of 3%, we need a nominal return of 6%. Therefore, the correct choice is C, which is 6%.

Suppose Prices Increase by 3% Per Year