Suppose your bank pays you 5 percent interest per year on your savings account. If prices increase by 5 percent per year over that time, approximately how much real value do you gain by keeping $100 in the bank for a year?

Question

Quizplus · Accepted Answer

The nominal interest rate (5%) is equal to the inflation rate (5%), so there is no real gain or loss in the purchasing power of the $100 over the course of the year. Therefore, the real value gain is $0.

Suppose Your Bank Pays You 5 Percent Interest Per Year