ECONOMICS (CBSE/UGC NET)

Previous
Next

ECONOMICS

INFLATION

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Joann borrowed $1, 000 from her sister two years ago. Today she wrote her sister a check for $1, 010-$1, 000 for the loan and $10 for interest. The inflation rate has averaged 3 percent each year since she borrowed the money. With inflation, is Joann financially better off, worse off, or the same?
A
Better off
B
Worse off
C
The same
D
None of the above
Explanation: 

Detailed explanation-1: -To calculate a real interest rate, you subtract the inflation rate from the nominal interest rate. In mathematical terms we would phrase it this way: The real interest rate equals the nominal interest rate minus the inflation rate.

Detailed explanation-2: -If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

Detailed explanation-3: -It states that the nominal interest rate is approximately equal to the real interest rate plus the inflation rate (i = R + h).

Detailed explanation-4: -Find the average price in both years: $1.60 in 1992 and $2.62 in 2012. Enter the data into the equation. Subtract the 1992 price from the 2012 price ($1.02) Divide the difference by the original price. ($1.02 รท $1.60 = 0.6375) Multiply the previous answer by 100 to get a percentage.

There is 1 question to complete.
Previous
Next