Gce Model Questions Vol1 2020 Economics Question 10
Practice objective / multiple choice question 10 from the 2020 Gce Model Questions Vol1 Economics examination.
A consumer price index (CPI) is constructed using two goods. In the base year (Year 1) the price of Good X is £10 and that of Good Y is £20, with expenditure weights of 60 % and 40 % respectively. In Year 2 the prices become £12 for X and £22 for Y; in Year 3 they become £13 for X and £24 for Y. (a) Compute the Laspeyres CPI for Year 2 and Year 3 (base year = Year 1). (b) Calculate the average annual inflation rate over the two‑year period from Year 1 to Year 3 using the geometric mean. (c) If a nominal interest rate of 8 % per annum is offered in Year 3, estimate the real interest rate using the Fisher approximation (real ≈ nominal - inflation). Give percentages to two decimal places.
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About This Question
This is Gce Model Questions Vol1 2020 Economics Question 10. It is one of the objective questions from the 2020 Gce Model Questions Vol1 Economics examination.
Difficulty level: Medium .
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