Gce Model Questions Vol1 2020 Economics Question 40

Practice objective / multiple choice question 40 from the 2020 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2020 Economics Objective / Multiple Choice Medium Difficulty
Question 40 GCE_MODEL_QUESTIONS_VOL1 • 2020 • ECONOMICS • objective

The Consumer Price Index (CPI) was 120 last year and 126 this year. A savings account offers a nominal interest rate of 8 % per annum. Calculate:\n\na) the annual inflation rate,\nb) the real interest rate using the exact Fisher formula,\nc) the real interest rate using the Fisher approximation.

Answer Options

A. Inflation = 6%; Real rate (exact) ≈ 1.89%; Real rate (approx.) = 2%
Correct Answer B. Inflation = 5%; Real rate (exact) ≈ 2.86%; Real rate (approx.) = 3%
C. Inflation = 4%; Real rate (exact) ≈ 3.92%; Real rate (approx.) = 5%
D. Inflation = 5%; Real rate (exact) ≈ 3.20%; Real rate (approx.) = 4%
Correct Answer
B
Correct Option:
Inflation = 5%; Real rate (exact) ≈ 2.86%; Real rate (approx.) = 3%

About This Question

This is Gce Model Questions Vol1 2020 Economics Question 40. It is one of the objective questions from the 2020 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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