Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent. true or false?

Question

Nikolai

Business

1 November, 07:53

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent. true or false?

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Answers (1)

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Tripp French · Answer 1

False

Explanation:

Purchasing power increases by amount of deflation (negative inflation). So, while inflation lowers purchasing power, deflation increases purchasing power by amount of deflation.

Increase in purchasing power = 7%