Neco 2018 Economics Question 28

Practice objective / multiple choice question 28 from the 2018 Neco Economics examination.

Neco 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 28 NECO • 2018 • ECONOMICS • objective

The consumer price index (CPI) was 120 last year and 126 this year. The nominal interest rate on a savings account is 12% per annum.\n\n(a) Calculate the inflation rate for the year.\n\n(b) Using the exact Fisher equation, determine the real interest rate. Also give the approximate real rate using the simple subtraction method.\n\n(c) State the percentage change in the purchasing power of money over the year.

Answer Options

A. Inflation = 4%; exact real rate ≈ 7.69%; approximate real rate = 8%; purchasing power fell by 4%.
B. Inflation = 6%; exact real rate ≈ 5.66%; approximate real rate = 6%; purchasing power fell by 6%.
C. Inflation = 5%; exact real rate ≈ 7%; approximate real rate = 6%; purchasing power fell by 5%.
Correct Answer D. Inflation = 5%; exact real rate ≈ 6.67%; approximate real rate = 7%; purchasing power fell by 5%.
Correct Answer
D
Correct Option:
Inflation = 5%; exact real rate ≈ 6.67%; approximate real rate = 7%; purchasing power fell by 5%.

About This Question

This is Neco 2018 Economics Question 28. It is one of the objective questions from the 2018 Neco Economics examination.

Difficulty level: Medium .

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