Maxine deposits 100 in a bank account that pays an annual in

Maxine deposits $100 in a bank account that pays an annual interest rate of 20%. A year later, after Maxine has accumulated $20 in interest, she withdraws her $120. Maxine’s purchasing power

a. did not change if the inflation rate was 0%.

b. decreased if the inflation rate was -2%.

c. increased if the inflation rate was 5%.

d. More than one of the above is correct.

Solution

c. increased if the inflation rate was 5%.