Comparison of Typical Household Returns to Currency and Policy-Rate Returns
Due to the low interest rates offered on standard savings and current accounts, the actual rate of return for a typical household's bank savings is more comparable to the real return on holding physical currency than to the higher real return available on assets that pay the policy rate.
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Introduction to Macroeconomics Course
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Preference for Higher-Return Assets over Cash for Long-Term Savings
Bank Profitability as a Determinant of Deposit Rates
Impact of Service Costs on Current Account Interest Rates
Comparison of Typical Household Returns to Currency and Policy-Rate Returns
An individual plans to save for a major purchase that is 15 years away. They decide to place their savings in a standard commercial bank deposit account that offers a very low interest rate. Which of the following statements most accurately analyzes the primary financial disadvantage of this strategy for a long-term goal?
Financial Goal Planning
Evaluating Savings Options for Long-Term Goals
Match each type of financial holding with the description that best characterizes its primary trade-off for a saver.
Holding a large portion of one's long-term savings in a standard commercial bank deposit account is a highly effective strategy for substantially growing the real purchasing power of that money over several decades.
Comparison of Typical Household Returns to Currency and Policy-Rate Returns
A country's central bank announces its main policy interest rate is 4.5%. However, a typical citizen observes that their personal savings account at a commercial bank only offers a 2.5% interest rate. Which of the following statements best analyzes the fundamental economic reason for this difference in interest rates?
Evaluating Public Statements on Interest Rates
Explaining Interest Rate Discrepancies
For the majority of households, the interest rate offered on a standard savings account is a direct and unfiltered reflection of the central bank's primary policy rate.
Learn After
Analysis of Household Savings Options
Consider an economy with an annual inflation rate of 3%, a central bank policy rate of 5%, and a typical household savings account interest rate of 0.5%. Based on this information, which statement most accurately compares the real rates of return from a household's perspective?
Real Returns for Households
A household's savings held in a typical commercial bank deposit account will always yield a higher real rate of return than holding the same amount in physical currency, because the bank deposit earns a nominal interest rate while physical currency does not.