Question

Suppose you have $200,000 in a bank term account. You earn 5% interest per
annum from this account.
You anticipate that the inflation rate will be 4% during the year. However, the
actual inflation rate for the year is 6%.
Calculate the impact of inflation on the bank term deposit you have and
examine the effects of inflation in your city of residence with attention to food
and accommodation expenses.

Answer 1

Answer:

Explanation:

Amount deposited in Bank = 200,000

Interest rate earned = 5%

Amount at end of 1 year = 200,000 * 1.05

                                            = 210,000

Now if the inflation is expected to be 4 % according to purchasing power. 200,000 * 1.04 = 208000. So he will able to purchase same thing  after 1 year.

That means the person have extra money

210,000 -  208000 = 2000

But if the inflation rate is 6 %

Then the price of same thing  would be 200,000 * 1.06 = 212000.

Now if the person buys the same thing then he must have 2000 extra money.