You Loaned $100 to a Friend for One Year at a Nominal

question 3

Multiple Choice

You loaned $100 to a friend for one year at a nominal rate of interest of 3 percent. Inflation during that year was 2 percent. How much did the purchasing power of your money change (an increase is positive and a decrease is negative) ?

• A) increased by 1 percent.
• B) decreased by 1 percent.
• C) increased by 5 percent.
• D) decreased by 5 percent.