Neco 2020 Economics Question 2

Practice objective / multiple choice question 2 from the 2020 Neco Economics examination.

Neco 2020 Economics Objective / Multiple Choice Medium Difficulty
Question 2 NECO • 2020 • ECONOMICS • objective

In year 1 the consumer price index (CPI) was 150 and in year 2 it rose to 165. A 1‑year Treasury bond offered a nominal interest rate of 12% in year 2. \( (a) \) Compute the inflation rate between the two years. \( (b) \) Using the Fisher equation, find the real interest rate for the bond. \( (c) \) A worker's nominal monthly wage increased from ₦50,000 to ₦56,000 over the same period. Determine the percentage change in the worker's real wage and state whether purchasing power improved.

Answer Options

A. Inflation = 12%; real interest rate ≈ 0%; real wage rose by about 0%, so purchasing power unchanged.
B. Inflation = 10%; real interest rate ≈ 2.5%; real wage rose by about 2.5%, so purchasing power improved.
C. Inflation = 9%; real interest rate ≈ 3%; real wage fell by about 3%, so purchasing power declined.
Correct Answer D. Inflation = 10 %; real interest rate ≈ 1.82 %; real wage rose by about 1.82 %, so purchasing power improved.
Correct Answer
D
Correct Option:
Inflation = 10 %; real interest rate ≈ 1.82 %; real wage rose by about 1.82 %, so purchasing power improved.

About This Question

This is Neco 2020 Economics Question 2. It is one of the objective questions from the 2020 Neco Economics examination.

Difficulty level: Medium .

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