Question 1

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent,then the real interest rate is

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. In this case, the real interest rate would be:

Real interest rate = Nominal interest rate - Inflation rate
Real interest rate = 5% - 9%
Real interest rate = -4%

Therefore, the answer is A) -4 percent.

Question 2

The consumer price index was 120 in 2013 and 126 in 2014.The nominal interest rate during this period was 8 percent.What was the real interest rate during this period?

Accepted Answer

The real interest rate can be calculated using the formula: Real Interest Rate = Nominal Interest Rate - Inflation Rate. The inflation rate is calculated as ((126 - 120) / 120) * 100 = 5%. Therefore, the real interest rate is 8% - 5% = 3%.

Question 3

If the nominal interest rate is 9 percent and the real interest rate is 3 percent,then the inflation rate is

Accepted Answer

The inflation rate can be found by subtracting the real interest rate from the nominal interest rate.

Inflation rate = Nominal interest rate - Real interest rate 
= 9% - 3% 
= 6%

Therefore, the correct answer is C) 6 percent.

Question 4

During a certain year,the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent.For that year,

Accepted Answer

To find the nominal interest rate, we need to subtract the inflation rate from the increase in purchasing power.

Increase in purchasing power = 4%

Inflation rate = ((132-120)/120) x 100% = 10%

Nominal interest rate = 4% + 10% = 14%

Therefore, answer B is correct.

Question 5

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent,then the real interest rate is

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. Here, 5% - (-2.5%) = 7.5%.

Question 6

During a certain year,the nominal interest rate was 8 percent,the real interest rate was 3 percent,and the CPI was 176.7 at the beginning of the year.The CPI at the end of the year was

Accepted Answer

To find the change in CPI, we use the formula:

% change in CPI = (Ending CPI - Beginning CPI) / Beginning CPI * 100

We know that the real interest rate is equal to the nominal interest rate minus the inflation rate.

3 = 8 - Inflation rate

Inflation rate = 5

Using the above formula we can find the ending CPI:

% change in CPI = (Ending CPI - 176.7) / 176.7 * 100 = 5

Simplifying the above equation, we get:

Ending CPI = 176.7 * (1 + 5/100) = 185.5

Therefore, the answer is B, 185.5.

Question 7

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent,then the real interest rate is

Accepted Answer

The real interest rate is calculated by subtracting the rate of inflation from the nominal interest rate. So, real interest rate = nominal interest rate - inflation rate. 
In this case, real interest rate = 6% - 10% = -4%. 
Since the real interest rate is negative, it means that the inflation rate is higher than the nominal interest rate, indicating that the purchasing power of the money is decreasing over time. So, the correct answer is option B.

Question 8

Suppose the consumer price index was 184 in 2009 and 198.17 in 2010.The nominal interest rate during this period was 5.8 percent.What was the real interest rate during this period?

Accepted Answer

The real interest rate can be calculated using the formula: Real Interest Rate = Nominal Interest Rate - Inflation Rate. The inflation rate is calculated as ((198.17 - 184) / 184) * 100 = 7.7%. Therefore, the real interest rate is 5.8% - 7.7% = -1.9%.

Question 9

If the nominal interest rate is 5 percent,and the rate of inflation is 3 percent,then the real interest rate is equal to

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate: 5% - 3% = 2%.

Question 10

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

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.

Question 11

The CPI was 220 in 2012 and 231 in 2013.Phil borrowed money in 2012 and repaid the loan in 2013.If the nominal interest rate on the loan was 10 percent,then the real interest rate was

Accepted Answer

The answer of The CPI was 220 in 2012 and...

Question 12

Suppose that over the past year,the real interest rate was 3 percent and the inflation rate was 1 percent.It follows that

Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate, which is 4% (3% + 1%). Therefore, the dollar value of savings increased by 4%, and the purchasing power increased by the real interest rate of 3%.

Question 13

If the nominal interest rate is 5 percent and the real interest rate is 7 percent,then the inflation rate is

Accepted Answer

The inflation rate can be calculated using the Fisher equation, which is: nominal interest rate = real interest rate + inflation rate. Rearranging the equation to solve for the inflation rate gives: inflation rate = nominal interest rate - real interest rate. Plugging in the given values: inflation rate = 5% - 7% = -2%.

Question 14

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent,then the real interest rate is

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate: 6% - 2% = 4%.

Question 15

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent,then the inflation rate is

Accepted Answer

Real interest rate= Nominal interest rate - Inflation rate
5.5% = 8% - Inflation rate
Inflation rate = 8% - 5.5% = 2.5%

Question 16

If the nominal interest rate is 4 percent and the real interest rate is 7 percent,then the inflation rate is

Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate. If the nominal rate is 4% and the real rate is 7%, the inflation rate must be -3% (4% - 7% = -3%).

Question 17

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent,then the inflation rate is

Accepted Answer

Real interest rate = Nominal interest rate - Inflation rate

-2.5% = 7% - Inflation rate

Inflation rate = 9.5%

Therefore, the correct answer is D, which is 9.5 percent.

Question 18

The consumer price index was 225 in 2008 and 232.2 in 2009.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Accepted Answer

To calculate the real interest rate, we need to use the formula: 
Real interest rate = ((1 + nominal interest rate) / (1 + inflation rate)) - 1
In this case, the inflation rate is ((232.2-225) / 225) = 3.2%
Then, plugging in the values, we get:
Real interest rate = ((1 + 0.065) / (1 + 0.032)) - 1 = 0.033 or 3.3%
Therefore, the best choice is B.

Question 19

If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent,then the real interest rate is

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. Here, 4.2% - (-0.5%) = 4.7%.

Question 20

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is

Accepted Answer

The formula for calculating the real interest rate is:
Real interest rate = Nominal interest rate - Inflation rate
Given the nominal interest rate as 4% and the real interest rate as -2.5%, the inflation rate can be calculated as:
-2.5% = 4% - Inflation rate
Inflation rate = 4% + 2.5%
Inflation rate = 6.5%
Therefore, the correct answer is D, which is 6.5%.

Quiz 11: Measuring the Cost of Living: Correcting Economic Variables for the Effects of Inflation