During a certain year, the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5 percent. For that year,

Question

Quizplus · Accepted Answer

To calculate the nominal interest rate, we need to subtract the inflation rate from the increase in purchasing power. The increase in purchasing power can be calculated as (1 + 0.035) = 1.035. Thus, the increase in purchasing power is 3.5 percent.

The inflation rate can be calculated as ((159-150)/150) = 6 percent.

Therefore, the nominal interest rate is (1 + 0.035) x (1 + 0.095) - 1 = 0.1262, or 12.62 percent (rounded to two decimal places).

Therefore, the correct answer is B, as the nominal interest rate was 9.5 percent.

During a Certain Year, the Consumer Price Index Increased from 150