The benefit of saving is the:Group of answer choicesreal interest ratenominal interest rateinflation ratesaving rate
Question
The benefit of saving is the:Group of answer choicesreal interest ratenominal interest rateinflation ratesaving rate
Solution
The benefit of saving is the real interest rate.
Here's why:
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When you save money, you often put it in a savings account or other investment. These accounts typically earn interest over time.
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The nominal interest rate is the rate of interest before adjustment for inflation. It's the rate that you'll typically see advertised by banks.
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However, the real interest rate is what you're actually earning on your savings after inflation. It's the nominal interest rate minus the inflation rate.
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The inflation rate is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
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The saving rate is the amount of money, expressed as a percentage or ratio, that one deducts from his/her disposable personal income to set aside as savings.
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Therefore, the real interest rate is the benefit of saving because it's what you're actually earning on your savings after accounting for inflation.
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