Asked by
Christina Thomas
on Dec 17, 2024
Verified
Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Abhijit's purchasing power has increased by 12 percent.
Purchasing Power
The worth of currency measured by how many goods or services can be purchased with one unit of it.
Deflation
A decrease in the general price level of goods and services, often leading to an increase in the real value of money.
Annual Interest Rate
The percentage of the principal that is paid as interest to the lender over the course of a year.
- Recognize the repercussions of inflation and deflation on the purchasing power and key economic indicators.
- Familiarize yourself with the way to analyze changes in consumer buying power resulting from inflation or deflation.
Verified Answer
AV
Learning Objectives
- Recognize the repercussions of inflation and deflation on the purchasing power and key economic indicators.
- Familiarize yourself with the way to analyze changes in consumer buying power resulting from inflation or deflation.