Gce Model Questions Vol1 2017 Economics Question 14

Practice objective / multiple choice question 14 from the 2017 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2017 Economics Objective / Multiple Choice Medium Difficulty
Question 14 GCE_MODEL_QUESTIONS_VOL1 • 2017 • ECONOMICS • objective

A borrower takes a loan with a nominal interest rate of 8 % per annum. The borrower expects inflation to be 5 % over the next year, but the actual inflation that occurs is 6 %. Using the Fisher equation, find (i) the expected real interest rate, (ii) the actual real interest rate, (iii) the percentage change between the expected and actual real rates, and (iv) state whether the borrower gains or loses because of the difference.

Answer Options

A. Expected real ≈ 2.50 %; actual real ≈ 1.50 %; real rate fell about 40 %; borrower gains
B. Expected real ≈ 3.00 %; actual real ≈ 2.00 %; real rate fell about 33 %; borrower loses
C. Expected real ≈ 2.86 %; actual real ≈ 2.20 %; real rate fell about 23 %; borrower loses
Correct Answer D. Expected real ≈ 2.86 %; actual real ≈ 1.89 %; real rate fell about 34 %; borrower gains
Correct Answer
D
Correct Option:
Expected real ≈ 2.86 %; actual real ≈ 1.89 %; real rate fell about 34 %; borrower gains

About This Question

This is Gce Model Questions Vol1 2017 Economics Question 14. It is one of the objective questions from the 2017 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

View More Gce Model Questions Vol1 2017 Economics Questions More Gce Model Questions Vol1 Practice Questions Back to Questions

Master the Exam!

You've seen a preview, but there are thousands more questions plus AI tutor to break down complex solutions.

Unlock Full Access Available for Android & Windows
Chat with Support