If the value of your savings is increasing over time, it must be true that the inflation rate:
A) is higher than the nominal interest rate.
B) is lower than the nominal interest rate.
C) and the nominal interest rate are the same.
D) must be zero.

Question

Quizplus · Accepted Answer

If the value of savings is increasing over time, it means the return earned on the savings is at least equal to the inflation rate. Therefore, if inflation rate were higher than the nominal interest rate, the savings would actually be losing value. Hence, the inflation rate must be lower than the nominal interest rate.

If the Value of Your Savings Is Increasing Over Time