Question

Suppose Rosa is a sports fan and buys only baseball caps. Rosa deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $15.00. Initially, the purchasing power of Rosa's $3,000 deposit is ___ baseball caps.

Answer 1

Purchasing power of Rosa's $3,000 deposit is 200 baseball caps.

Step-by-step explanation:

Purchasing Power = Money / Price

Eg : If Rs 100 is available, Price level = Rs 10

Purchasing power = 100/10 = 10

Similarly , Purchasing power of $3000 deposit with price level $15 is :-

3000/15 = 20 Baseball caps