Table 24-4
Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table.

-Refer to Table 24-4. Suppose Will's Year 1 food expenditures in Year 3 dollars amounted to $9,590. Suppose also that the real interest rate in Year 3 was 6 percent. Then, in Year 3,
A)the inflation rate was 14 percent and the nominal interest rate was 8 percent.
B)the inflation rate was 20 percent and the nominal interest rate was 14 percent.
C)the inflation rate was 14 percent and the nominal interest rate was 20 percent.
D)the inflation rate was 20 percent and the nominal interest rate was 8 percent.

Question

Table 24-4
Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table.
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-Refer to Table 24-4. Suppose Will's Year 1 food expenditures in Year 3 dollars amounted to $9,590. Suppose also that the real interest rate in Year 3 was 6 percent. Then, in Year 3,
A)the inflation rate was 14 percent and the nominal interest rate was 8 percent. 
B)the inflation rate was 20 percent and the nominal interest rate was 14 percent. 
C)the inflation rate was 14 percent and the nominal interest rate was 20 percent. 
D)the inflation rate was 20 percent and the nominal interest rate was 8 percent.

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. Given a real interest rate of 6%, if the inflation rate was 14%, the nominal interest rate would be 20% (6% + 14%).

Table 24-4 Lee's Expenditures on Food for Three Consecutive Years, Along with Along