Twelve Years Ago, Jake Invested $2,000

question 156

Multiple Choice

Twelve years ago, Jake invested $2,000. Six years ago, Tami invested $4,000. Today, both Jake's and Tami's investments are each worth $9,700. Assume that both Jake and Tami continue to earn their respective rates of return. Which one of the following statements is correct concerning these investments?

• A) Three years from today, Jake's investment will be worth more than Tami's.
• B) One year ago, Tami's investment was worth more than Jake's.
• C) Jake has earned a higher rate of return than Tami.
• D) Tami has earned an average annual interest rate of 15.91%.
• E) Jake has earned an average annual interest rate of 15.47%.

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Definitions:

Real Wage

The purchasing power of wages, taking into account the effects of inflation or deflation, indicating the quantity of goods and services that can be bought.

Price Level

A uniform average of prices across the diverse range of economic goods and services.

Potential Output

The highest level of real gross domestic product (GDP) that can be sustained over the long term without increasing inflation.

Price Level

An indicator reflecting the average prices of goods and services in an economy at a given time, showcasing the cost of living and inflation.