Question

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.a. The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.b. The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.c. The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.d. The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.

Answer 1

Answer: B. The nominal interest rate was 6 percent and the inflation rate was -1.5 percent

Explanation: From the above question, we can see that the nominal interest rate is the actual interest accrued on the account for the period of time the money was kept in the bank without considering any bank charges on the money.

The inflation rate is the percentage increase or decrease in price during a specific period. From the above question the inflation rate is -1.5 (6 - 7.5).

Answer 2

Answer: b. The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.

Explanation:

Darla noticed a year later that the account had 6% more dollars than it did the year before. This means that there is a nominal interest rate of 6% because that is how much her dollars appreciated by.

The Inflation rate is the rate that measures the sustained increase in general prices of goods and services. Darla's money increased by 6% yet she was able to buy 7.5% more of goods because of that increase. If we remove her 6% gain then we can find out how much she can buy without the gain. Removing the gain would be 7.5 - 6 = 1.5.

Darla without the gain could buy 1.5% more goods. That means that prices must have dropped to enable her buy more goods than she could have with a certain amount of dollars. Seeing as inflation is a rate for an increase in prices, a decrease must be accounted for in the negatives. This means that the INFLATION RATE is -1.5%.