If the nominal interest rate is higher than the inflation rate, the value of your savings:
A) will increase.
B) will decrease.
C) should remain about the same.
D) cannot be assessed without knowing the beginning balance of savings.

Question

Quizplus · Accepted Answer

When the nominal interest rate is higher than the inflation rate, it means that the real interest rate (nominal interest rate - inflation rate) is positive. This means that the value of your savings will increase in purchasing power over time. For example, if your savings earn a nominal interest rate of 4% per year and the inflation rate is 2% per year, your real interest rate is 2% (4% - 2%). This means that the value of your savings will increase by 2% in purchasing power over the course of the year.

If the Nominal Interest Rate Is Higher Than the Inflation