Inflation: Calculating Effective Interest Rate

Activity Description

In this thought-provoking worksheet activity, students will explore a fundamental economic concept with real-world implications. They will encounter a table presenting the costs of five essential products in both the previous year and the current year. With $10,000 available money, students will face a critical decision: whether to make these essential purchases in advance or defer them to the current year.

Students will realize that if they defer to the next year and don't invest the $10,000 money in some savings schemes, their purchasing power is reduced / the value of their money decreases. Students will be presented with an alternate option to invest in a savings scheme that gives 4% returns, students will then do calculations to determine the effective interest rate and find out that the effective interest rate is less than the savings interest rate due to inflation.

This worksheet is a classroom-ready interactive and dynamic worksheet that just needs a few clicks to assign to your classroom. The worksheet is auto-scored, teachers just need to open the real-time console and monitor the student progress.

Learning Objective

In this worksheet activity, students will compare the prices of items from the previous year and the next year to see the effect of inflation. They will calculate how much purchasing power they lost by not buying last year and waiting for this year. Students will then explore how placing money in a savings account could help reduce the impact of inflation. Through this exercise, they will understand the concept of the effective interest rate and how it helps preserve the value of their savings against inflation.

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