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04/04/2020 Client: suns Deadline: 2 Day

 Interest, inflation, and purchasing power


Suppose Susan is an avid reader and buys only comic books. Susan deposits $2,000 in a bank account that pays an annual nominal interest rate of 5%.


Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a comic book is priced at $20.00.


Initially, the purchasing power of Susan's $2,000 deposit is comic books.

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