Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.

Question

Quizplus · Accepted Answer

If Katarina's money increased by 6 percent and the goods she can buy increased by 2 percent, then the real interest rate would be the nominal interest rate minus the inflation rate. Using the formula: 
Real interest rate = Nominal interest rate - Inflation rate

we can solve for the options given:
A) 2% real interest rate = 8% nominal interest rate - 6% inflation rate (incorrect)
B) 2% real interest rate = 6% nominal interest rate - 4% inflation rate (correct)
C) 2% real interest rate = 4% nominal interest rate - 2% inflation rate (incorrect)

Therefore, the best choice is B, where the nominal interest rate was 6 percent and the inflation rate was 4 percent.

Katarina Puts Money into an Account