If you put $100 in the bank for one year at an annual nominal interest rate of 5 percent and yearly inflation is running at 7 percent, you will be able to buy $105 worth of inflation adjusted goods when you pull it out of your account.

Question

Quizplus · Accepted Answer

The nominal interest rate is lower than the inflation rate, so the purchasing power of the $100 will actually decrease over time. After one year, the $100 will be worth $93.50 in inflation-adjusted dollars.

If You Put $100 in the Bank for One Year