Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent. true or false?

Question

Business

Evelin Blackwell

30 April, 01:10

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent. true or false?

+3

Answers (1)

Know the Answer?

West · Answer 1

False

Explanation:

Purchasing power increases by amount of deflation (negative inflation). So, while inflation lowers purchasing power, deflation increases purchasing power by amount of deflation.

Increase in purchasing power = 7%