Imagine you have savings of $10,000 in your savings account in the bank and it pays an interest rate of 0.01%. Inflation on average is 2% for the last decade. What is your real rate of return on your money at the bank? Explain what is the difference between real rate of return and nominal rate of return? You may need to go to a previous chapter to find out how to calculate real interest rate. Explain how Inflation affects your standards of living, and your real return.

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To calculate the real rate of return we use the formula Real Rate of Return Nominal Rate of Return 1 ... View the full answer