Question

Suppose Alyssa is a sports fan and buys only baseball caps. Alyssa deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $15.00. Initially, the purchasing power of Alyssa's $3,000 deposit

Answer 1

Answer:

is equal to 200 baseball caps.

given the following inflation rates, how does the purchasing power of Alyssa change:

inflation rates for 1 year           5%                10%                15%

new price of caps                 $15.75            $16.50           $17.25

in 1 yer Alyssa will have       $3,300           $3,300          $3,300

purchasing power                   209                200               191