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You Loaned $100 to a Friend for One Year at a Nominal

Question 3

Multiple Choice

You loaned $100 to a friend for one year at a nominal rate of interest of 3 percent. Inflation during that year was 2 percent. How much did the purchasing power of your money change (an increase is positive and a decrease is negative) ?


A) increased by 1 percent.
B) decreased by 1 percent.
C) increased by 5 percent.
D) decreased by 5 percent.

Correct Answer:

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