Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 2 percent during the year the money was deposited,then Bob's purchasing power has increased by 3 percent.

Question

Quizplus · Accepted Answer

Bob's purchasing power increased by the nominal interest rate (5%) minus the inflation rate (2%), resulting in a real increase of 3%.

Bob Deposits $100 in a Bank Account That Pays an Annual