Question

Select the correct answer.
What is the rate of inflation if a savings account has a nominal interest rate of 3% and a real interest rate of 1%?
A. 1%
B. 2%
C. 3%
D. 4%

Answer 1

Answer:

For example, if the nominal interest rate offered on a three-year deposit is 4% and the inflation rate over this period is 3%, the investor's real rate of return is 1%. On the other hand, if the nominal interest rate is 2% in an environment of 3% annual inflation, the investor's purchasing power erodes by 1% per year.