Gce Model Questions Vol1 2022 Economics Question 1

Practice objective / multiple choice question 1 from the 2022 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2022 Economics Objective / Multiple Choice Medium Difficulty
Question 1 GCE_MODEL_QUESTIONS_VOL1 • 2022 • ECONOMICS • objective

The consumer price index (CPI) was 120 at the start of 2021, rose to 132 at the end of 2022 and to 138 at the start of 2023. A government bond pays a nominal annual interest rate of \(8\%\) compounded once per year. A savings account offers a nominal rate of \(6\%\) per annum, with interest paid semi‑annually and compounded. Assuming the inflation rate for the year 2022‑2023 is measured by the change in CPI, which investment provides the higher real rate of return for that year? State the investment and the approximate real return (to one decimal place).

Answer Options

Correct Answer A. The 8 % bond gives the higher real return, about 3.3 % versus 1.5 % for the savings account.
B. The 6 % savings account gives the higher real return, about 3.0 % versus 2.2 % for the bond.
C. The 8 % bond gives the higher real return, about 2.5 % versus 1.0 % for the savings account.
D. The 6 % savings account gives the higher real return, about 2.9 % versus 1.4 % for the bond.
Correct Answer
A
Correct Option:
The 8 % bond gives the higher real return, about 3.3 % versus 1.5 % for the savings account.

About This Question

This is Gce Model Questions Vol1 2022 Economics Question 1. It is one of the objective questions from the 2022 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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