Neco Model Questions Vol1 2019 Economics Question 33

Practice objective / multiple choice question 33 from the 2019 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2019 Economics Objective / Multiple Choice Medium Difficulty
Question 33 NECO_MODEL_QUESTIONS_VOL1 • 2019 • ECONOMICS • objective

In a country the nominal interest rate is \(12\%\) per annum. Investors expect inflation next year to be \(8\%\). However, actual inflation turns out to be \(10\%\). Using the Fisher equation, compute the expected real interest rate, the actual real interest rate, and the percentage error in the investor's expectation of the real return.

Answer Options

A. Expected real = 4.00 %; Actual real = 2.00 %; Percentage error ≈ 100 %
Correct Answer B. Expected real = 3.70 %; Actual real = 1.82 %; Percentage error ≈ 103.3 %
C. Expected real = 3.50 %; Actual real = 2.00 %; Percentage error ≈ 75 %
D. Expected real = 1.82 %; Actual real = 3.70 %; Percentage error ≈ 103.3 %
Correct Answer
B
Correct Option:
Expected real = 3.70 %; Actual real = 1.82 %; Percentage error ≈ 103.3 %

About This Question

This is Neco Model Questions Vol1 2019 Economics Question 33. It is one of the objective questions from the 2019 Neco Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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