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19 November, 18:44

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of ayear, the inflation rate is 1.7 percent. At the end of the year, Corey hasa. $17 more in his account, and his purchasing power has increased by $10. b. $30 more in his account, and his purchasing power has increased by $50. c.$40 more in his account, and his purchasing power has increased by $33. d. $50 more in his account, and his purchasing power has increased by $33.

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  1. 19 November, 20:56
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    The correct answer is D.

    Explanation:

    Giving the following information:

    Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Throughout a year, the inflation rate is 1.7 percent.

    I will separate the answer in two different calculations. First, compute the nominal increase. Then, determine the real increase in purchasing power:

    Nominal increase = 1,000*0.05 = 50

    Real increase = (1,000*0.05) - (1,000*0.017) = $33
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