Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of ayear, the inflation rate is 1.7 percent. At the end of the year, Corey hasa. $17 more in his account, and his purchasing power has increased by $10. b. $30 more in his account, and his purchasing power has increased by $50. c.$40 more in his account, and his purchasing power has increased by $33. d. $50 more in his account, and his purchasing power has increased by $33.

Question

Dale Stout

Business

6 August, 05:10

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of ayear, the inflation rate is 1.7 percent. At the end of the year, Corey hasa. $17 more in his account, and his purchasing power has increased by $10. b. $30 more in his account, and his purchasing power has increased by $50. c.$40 more in his account, and his purchasing power has increased by $33. d. $50 more in his account, and his purchasing power has increased by $33.

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Answers (1)

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Bradyn Moss · Answer 1

The correct answer is D.

Explanation:

Giving the following information:

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Throughout a year, the inflation rate is 1.7 percent.

I will separate the answer in two different calculations. First, compute the nominal increase. Then, determine the real increase in purchasing power:

Nominal increase = 1,000*0.05 = 50

Real increase = (1,000*0.05) - (1,000*0.017) = $33