Final answer:
If the nominal interest rate is 6 percent and the expected inflation rate is 4 percent, then the dollar value of savings increases by 6 percent while the value of savings measured in goods is expected to increase by 2 percent, due to the real interest rate being the nominal rate minus inflation.
Step-by-step explanation:
When evaluating the effects of nominal interest rates and inflation on the value of savings, two measurements must be considered: the dollar value of savings and the value of savings measured in terms of goods. The nominal interest rate indicates the gross increase in monetary value, while the inflation rate indicates the decrease in purchasing power.
Therefore, if the nominal interest rate is 6 percent and the expected inflation rate is 4 percent, the correct statement is:
d. The dollar value of savings increases by 6 percent and the value of savings in goods is expected to increase by 2 percent.
The real interest rate, which represents the adjusted value of savings after accounting for inflation, is calculated by subtracting the inflation rate from the nominal interest rate (nominal interest rate - inflation rate). Hence, the real interest rate here is 2 percent (6% - 4%).
This means that while the dollar value of savings will increase by the entire nominal rate of 6 percent, the actual purchasing power increase when measured in goods is only 2 percent because of the effects of inflation eroding the value of money.