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You loaned $100 to a friend for one year at a nominal rate of interest of 3 percent. Inflation during that year was 2 percent. How much did the purchasing power of your money change (an increase is positive and a decrease is negative)

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abiolataiwo2015

Based on the information given the purchasing power of your money change Increase by approximately 1 percent.

Purchasing power

Using this formula

Purchasing power=Nominal rate of interest-Inflation rate

Where:

Nominal rate=3%

Inflation rate=2%

Let plug in the formula

Purchasing power=3%-2%

Purchasing power=1% increase

Inconclusion the purchasing power of your money change Increase by approximately 1 percent.

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