What are the real interest rates The purchasing power of her

What are the real interest rates?

The purchasing power of her deposit falls/ remains the same/ rises over the course of the year?

Solution

The real interest rate is the rate of interest an investor expects to receive after allowing for inflation. According to the Fisher equation, the real interest rate is approximately the nominal interest rate minus the inflation rate.

The purchasing power of her deposit falls over the course of the year.

Real interest rates are 20%, 0% and -2% over the course of the year.

When the rate of inflation is lass than the interest rate on Terese\'s deposit, the purchasing power of her deposit rises over the course of the year.