Suppose You Have $100 to Invest for a Year and the Nominal

question 97

Multiple Choice

Suppose you have $100 to invest for a year and the nominal interest rate is 7 percent. If the inflation rate during the year is 4 percent, at the end of the year your nominal gain from the investment is

• A) $3.
• B) $4.
• C) $7.
• D) $11.

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Definitions:

Average Propensity

The ratio of total consumption to total income, indicating how much income is spent rather than saved.

Save

Setting aside money or other resources for future use or in case of emergencies.

Consume

The action of using up goods or services, thus leading to a reduction in available quantity.

GDP

The entirety of value generated from goods and services within a country's borders throughout a specific duration sums up what is known as the Gross Domestic Product.