Gce Model Questions Vol1 2019 Economics Question 17

Practice objective / multiple choice question 17 from the 2019 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2019 Economics Objective / Multiple Choice Medium Difficulty
Question 17 GCE_MODEL_QUESTIONS_VOL1 • 2019 • ECONOMICS • objective

In year 1 the Consumer Price Index (CPI) was 120 and in year 2 it rose to 126. A government bond pays a nominal interest rate of 8 % per annum, and income tax of 20 % is levied on the interest earned. (a) Calculate the inflation rate between the two years. (b) Using the Fisher equation, determine the real interest rate before tax. (c) Determine the real interest rate after tax.

Answer Options

Correct Answer A. Inflation = 5 %; real interest before tax ≈ 2.86 %; real interest after tax ≈ 1.33 %
B. Inflation = 4 %; real interest before tax ≈ 4.00 %; real interest after tax ≈ 2.40 %
C. Inflation = 6 %; real interest before tax ≈ 3.00 %; real interest after tax ≈ 1.80 %
D. Inflation = 5 %; real interest before tax ≈ 2.00 %; real interest after tax ≈ 0.80 %
Correct Answer
A
Correct Option:
Inflation = 5 %; real interest before tax ≈ 2.86 %; real interest after tax ≈ 1.33 %

About This Question

This is Gce Model Questions Vol1 2019 Economics Question 17. It is one of the objective questions from the 2019 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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