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11 November, 19:34

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.

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  1. 11 November, 20:40
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    Purchasing power of Rosa's $3,000 deposit is 200 baseball caps.

    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
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