In

$19751975,$

interest rates were

$7\mathrm{.}98\%7\mathrm{.}98\%$

and the rate of inflation was

$12\mathrm{.}36\%12\mathrm{.}36\%$

in the United States. What was the real interest rate in

$19751975?$

How would the purchasing power of your savings have changed over the$$ year?

Question content area bottom

Part $1$

What was the real interest rate in

$19751975?$

The real interest rate in

$19751975$

was

negative $3\mathrm{.}903\mathrm{.}90\%.$

$($Round to two decimal$$ places.$)$

Part $2$

How would the purchasing power of your savings have changed over the$$ year?$($Select the best choice$$ below.$)$

A$.$

The growth in purchasing power is

$1$ minus i equals $1$ minus $0\mathrm{.}0798$ equals $0\mathrm{.}92021$i$=10\mathrm{.}0798=0\mathrm{.}9202.$

Because of the high rate of$$ inflation, the purchasing power of money invested at

$7\mathrm{.}98\%7\mathrm{.}98\%$

is actually losing purchasing power.

B$.$

The growth in purchasing power is

$1$ minus i equals $1$ minus $0\mathrm{.}1236$ equals $0\mathrm{.}87641$i$=10\mathrm{.}1236=0\mathrm{.}8764.$

Because of the high rate of$$ inflation, the purchasing power of money invested at

$12\mathrm{.}36\%12\mathrm{.}36\%$

is actually losing purchasing power.

C$.$

The growth in purchasing power is

$1$ plus r equals $1$ plus left parenthesis negative $0\mathrm{.}0390$ right parenthesis equals $0\mathrm{.}96101+$r$=1+(0\mathrm{.}0390)=0\mathrm{.}9610.$

Because of the high rate of$$ inflation, the purchasing power of money invested at

$12\mathrm{.}36\%12\mathrm{.}36\%$

is actually losing purchasing power.

D$.$

The growth in purchasing power is

$1$ plus r equals $1$ plus left parenthesis negative $0\mathrm{.}0390$ right parenthesis equals $0\mathrm{.}96101+$r$=1+(0\mathrm{.}0390)=0\mathrm{.}9610.$

Because of the high rate of$$ inflation, the purchasing power of money invested at

$7\mathrm{.}98\%7\mathrm{.}98\%$

is actually losing purchasing power.