Question

John Smith made a one year investment that generated a nominal return of 6% or $3000. The real return was $2000. What was the original investment amount? what was the annual inflation rate? Macroeconomic

Answer 1

The nominal value - without discounting the inflation rate - of income was $ 3000.

If the interest rate was 6%, a rule of three is enough to find the value of the original investment.

3000 - 6%

x - 100%

x = 50,000

The value of the investment was $ 50,000

In this case, the inflation rate also requires a simple calculation.

Inflation corroded $ 1000 dollars of income of $ 3000

Therefore the inflation rate will be 1000/3000 = 33.3%