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sveticcg [70]
2 years ago
12

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 t

he end of the year. The CPI at the beginning of the year was a.
159.2.

b.
168.3.

c.
185.5.

d.
196.1
Business
1 answer:
Dima020 [189]2 years ago
7 0

Answer:

CPI at the beginning of the year = 192.52

Explanation:

given data

nominal interest rate = 7 percent

real interest rate = 4 percent

CPI = 198.3

to find out

CPI at the beginning of the year

solution

we know that according to fisher equation

1 + r = \frac{1+n}{1+i}    ....................1

and for smaller values is equivalent to r

r = n - i           .....................2

here r is real interest rate and n is nominal interest rate and i is inflation rate

so from equation 2

4 = 7 - inflation rate

inflation rate = 3 percent

so

Rate of inflation = (CPI at the end of the year - CPI at the beginning of the year) × 100 ÷ CPI at the beginning of the year

put here value

3% = (198.3 - CPI at the beginning of the year) × 100 ÷  CPI at the beginning of the year

CPI at the beginning of the year = \frac{19830}{103}

CPI at the beginning of the year = 192.52

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