Part 1Suppose you postpone consumption and invest at 6% when inflation is 2%. What is the approximate real rate of your reward for saving? Part 1
A. 4% B. 3% C. 5% D. 6%

Question

Part 1Suppose you postpone consumption and invest at​ 6% when inflation is​ 2%. What is the approximate real rate of your reward for​ saving? Part 1
A. ​4% B. ​3% C. ​5% D. ​6%

BlackTom AI · Accepted Answer

To evaluate the real rate of return on saving when you postpone consumption, compare the nominal return to inflation.
Option A: 4% — This aligns with the approximate real rate calculation: 6% nominal minus 2% inflation equals about 4% real. This is the correct order of magnitude for the real reward.
Option B: 3% — This would imply a larger erosion from inflation, effectively subtracting 3 percentage points from the 6% nominal return, which is not the standard approximation of real return when inflation is 2%. It understates the real gain.
Option C: 5% — Subtracting 2% inflation from 6% would not yield 5%; it would yield 4% as the rough real rate. This overstates the effect of inflation on the nominal return.
Option D: 6% — Interpreting the real rate as equal to the nominal rate ignores inflation entirely, which misrepresents the loss of purchasing power due to rising prices.
In summary, the approximate real reward for saving is driven by the simple real-rate approximation real ≈ nominal − inflation, giving 6% − 2% ≈ 4%.

Test:FINAL

Part 1Suppose you postpone consumption and invest at 6% when inflation is 2%. What is the approximate real rate of your reward for saving? Part 1 A. 4% B. 3% C. 5% D. 6%

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