During a certain year,the nominal interest rate was 7 percent,the real interest rate was 4 percent,and the CPI was 198.3 at the end of the year.The CPI at the beginning of the year was
A)204.2
B)192.5
C)178.6
D)220.1

Question

Quizplus · Accepted Answer

The formula to calculate the real interest rate is:
Real interest rate = Nominal interest rate - Inflation rate

We know that the nominal interest rate was 7% and the real interest rate was 4%, therefore the inflation rate was:

Inflation rate = Nominal interest rate - Real interest rate
Inflation rate = 7% - 4%
Inflation rate = 3%

We also know that the CPI at the end of the year was 198.3. To find the CPI at the beginning of the year, we can use the following formula:
CPI at the beginning of the year = CPI at the end of the year / (1 + Inflation rate)

CPI at the beginning of the year = 198.3 / (1 + 0.03)
CPI at the beginning of the year = 192.5

Therefore, the best choice is B) 192.5.

During a Certain Year,the Nominal Interest Rate Was 7 Percent,the