Gce Model Questions Vol1 2018 Economics Question 34

Practice objective / multiple choice question 34 from the 2018 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 34 GCE_MODEL_QUESTIONS_VOL1 • 2018 • ECONOMICS • objective

An economy has a nominal interest rate of 12% per annum. Expected inflation for the coming year is 5%, but actual inflation turns out to be 7%. (a) Calculate the expected real interest rate using the Fisher equation. (b) Calculate the actual real interest rate. (c) If a borrower takes a loan of \(\text{₦}10{,}000\) for one year, what is the real value of the amount repaid after one year, using the actual inflation rate?

Answer Options

A. Expected real rate ≈ 5.00%; actual real rate ≈ 3.00%; real value of repayment ≈ \(\text{₦}9{,}800.00\)
B. Expected real rate ≈ 6.00%; actual real rate ≈ 4.00%; real value of repayment ≈ \(\text{₦}10{,}300.00\)
C. Expected real rate ≈ 7.00%; actual real rate ≈ 5.00%; real value of repayment ≈ \(\text{₦}10{,}500.00\)
Correct Answer D. Expected real rate ≈ 6.67%; actual real rate ≈ 4.67%; real value of repayment ≈ \(\text{₦}10{,}467.29\)
Correct Answer
D
Correct Option:
Expected real rate ≈ 6.67%; actual real rate ≈ 4.67%; real value of repayment ≈ \(\text{₦}10{,}467.29\)

About This Question

This is Gce Model Questions Vol1 2018 Economics Question 34. It is one of the objective questions from the 2018 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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