Comparing the Cost of Credit during Inflationary Periods. Dorothy lacks cash to pay for a $600 dishwasher. She could buy it from the store on credit by making 12 monthly payments of $52.74. The total cost would then be $632.88. Instead, Dorothy decides to deposit $50 a month in the bank until she has saved enough money to pay cash for the dishwasher. One year later, she has saved $642-$600 in deposits plus interest. When she goes back to the store, she finds the dishwasher now costs $660. Its price has gone up 10 percent. Was postponing her purchase a good trade-off for Dorothy? (Obj. 2)

No, it was not

Explanation:

In this question, we are asked to determine if Dorothy has made a good decision postponing her purchase by comparing the cost of credit during inflationary periods.

The correct answer to this is that, this is not a good trade-off. This is because after waiting 1 year, she had to pay more to buy the dishwasher. Although she had saved $642, the dishwasher price has increased from $600 to $660.

Looking at the scenario, if she had paid for the dishwasher using credit she would have paid a sum of only $632.88 according to the question.

What could however be the reason for her decision?

It may be possible that not incurring a debt and not being responsible for monthly payments were more important to Dorothy than the money she would have saved if she had used credit.