ECONOMICS (CBSE/UGC NET)

Previous
Next

ECONOMICS

INFLATION

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Selma is 75 years old and has a savings account to use in her retirement years. Each month she’s pleased to see the interest added to her savings account balance. The account pays an annual percentage rate of 2 percent. The current annual inflation rate is 4 percent. With inflation, is Selma financially better off, worse off, or the same?
A
Better Off
B
Worse off
C
The same
D
None of the above
Explanation: 

Detailed explanation-1: -How Inflation Shrinks Savings. Let’s say you have $100 in a savings account that pays a 1% interest rate. After a year, you will have $101 in your account. But if the rate of inflation is running at 2%, you would need $102 to have the same buying power that you started with.

Detailed explanation-2: -When developing a savings plan, why is it important to take inflation into account? Inflation will cause you to have less money to spend and keep in your account by driving up prices.

Detailed explanation-3: -Inflation reduces the purchasing power of savings (money put aside for future use) because the ability to buy things with the money saved falls.

Detailed explanation-4: -Which of the following is an example of inflation? The price level of many things you buy increases over time.

There is 1 question to complete.
Previous
Next