Table 6-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.

-Refer to Table 6-12. If the nominal interest rate was 8 percent in 2010, then

Question

Table 6-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 6-12. If the nominal interest rate was 8 percent in 2010, then

Quizplus · Accepted Answer

To calculate the real interest rate, we need to subtract the inflation rate from the nominal interest rate. The table shows that the price index increased from 100 in 2009 to 112 in 2010, which means the inflation rate was (112-100)/100 = 0.12 or 12%. Therefore, the real interest rate in 2010 was 8% - 12% = -4%. However, since negative interest rates don't make sense, we assume that the question is asking for the approximate real interest rate. In this case, we can use the Fisher equation: (1 + nominal interest rate) = (1 + real interest rate) X (1 + inflation rate). Solving for the real interest rate, we get: real interest rate = (1 + nominal interest rate) / (1 + inflation rate) - 1. Plugging in the values for 2010, we get: real interest rate = (1 + 0.08) / (1 + 0.12) - 1 = 0.03 or 3%.