Suppose the nominal interest rate is 4 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 5 percent. At the end of the year, you have earned:
A. a nominal increase in your savings of $40.
B. an increase in your purchasing power.
C. a real rate of return of 1 percent.
D. All of these statements are true.
Answer: A
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