Suppose you put $100 in the bank on January 1, 2017. If the annual nominal interest rate is 5 percent and the inflation rate is 5 percent, you will be able to buy ________ worth of inflation-adjusted goods on January 1, 2018.
A) $90
B) $110
C) $100
D) $105
E) $95

Question

Quizplus · Accepted Answer

When both the nominal interest rate and the inflation rate are 5 percent, the real interest rate is effectively 0 percent, meaning the purchasing power of your money remains the same. Therefore, you will be able to buy $100 worth of goods after one year.

Suppose You Put $100 in the Bank on January 1