Instead of spending the $50 a month you receive, you decided to invest it in your money market account at your bank. Assuming you will earn an average of 5% each year and inflation is forecasted to 2.5% a year, how much have you effectively earned after ten years? (Hint: must use a two formulas to solve this question) In other words, after you have factored out the effects of inflation, how much purchasing power do you have?
