Respuesta :
If you open a savings account with a 0.5% per year nominal interest rate, and the economy experiences 3% per year inflation, the nominal annual rate will be 0.5% the real annual rate will be equal to a -2.5 (negative) percent.
You must distinguish between real and nominal rates in this situation. The simplest way to think about it is that the real rate is equal to the nominal rate less inflation, which is how we accomplish this using something known as the fisher identity.
Real Rate = Nominal Rate - Inflation
Your real return is zero because your purchasing power hasn't changed at all, the real rate. We are informed that the nominal rate is 0.5 percent. In other words, the real rate is 0.5 minus 3 percent. Since your real interest rate is negative and inflation is equivalent to minus 2.5%, your money is either losing purchasing power now or it will soon because there is no stopping it.
Learn more about inflation here:
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