If the purchasing power of your savings is increasing over time, we know that:
A) the real rate of interest is positive.
B) if the nominal interest rate is zero, inflation must be negative.
C) the inflation rate must be less than the nominal rate of interest.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

All of these statements are true. If the purchasing power of savings is increasing, it means that the value of the money saved is growing. This can only happen if the real rate of interest is positive, meaning that the growth rate of savings is higher than the inflation rate. If the nominal interest rate is zero and the purchasing power of savings is still increasing, it means that the inflation rate must be negative (deflation). And lastly, if the inflation rate is less than the nominal rate of interest, the real rate of interest is positive and the purchasing power of savings is increasing.

If the Purchasing Power of Your Savings Is Increasing Over