Economics
How to solve this question? Practice Final Exam 3.2 #1

Question Description

If the price of a shmoo increases at a simple annual rate of 10%, while at the same time (one year) a $2000 bank deposit increases to $2860, then the SIMPLE ONE-YEAR REAL return from the deposit will be?

 Answer:30%    

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Final Answer

Deposit at end of I year =2860

Inflation =10%

Deposit at end of 1 year adjusted for inflation of 10% =2860/1.1=2600

Return =(2600-2000)/2000=30


madhavant (2757)
UT Austin

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