Question

Assume you have $2,000 in a savings account at the beginning of the year and the price level is equal to 100. If the price level is equal to 95 at the end of the year, the real value of your savings is closest to

Answer 1

Answer:

$2105

Explanation:

Given that

Amount of savings = 2000

Price level at beginning = 100

Price level at the end = 95

Recall that

Real value = Amount ÷ (ending period price level ÷ beginning period price level)

Thus,

Real value = 2000 ÷ (95/100)

= 2000 ÷ (0.95)

= $2105.26

Thus, the real value of the savings at year end is $2105