Gce Model Questions Vol1 2017 Economics Question 3
Practice objective / multiple choice question 3 from the 2017 Gce Model Questions Vol1 Economics examination.
In year 1 a CPI basket contains two goods: Good A (weight 40 %) priced at \(£5\) and Good B (weight 60 %) priced at \(£10\). In year 2 the prices rise to \(£6\) for A and \(£12\) for B, and a new Good C (price \(£8\)) is introduced with a weight of 10 %; the weights of A and B are reduced proportionally to keep the total at 100 %. (a) Using a Laspeyres index (base‑year weights), compute the inflation rate from year 1 to year 2. (b) If the nominal interest rate is 8 %, determine the real interest rate using the Fisher equation.
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About This Question
This is Gce Model Questions Vol1 2017 Economics Question 3. It is one of the objective questions from the 2017 Gce Model Questions Vol1 Economics examination.
Difficulty level: Medium .
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