Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
-Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011,
A)the inflation rate was 8 percent and the nominal interest rate was 5 percent.
B)the inflation rate was 9 percent and the nominal interest rate was 6 percent.
C)the inflation rate was 8 percent and the nominal interest rate was 11 percent.
D)the inflation rate was 9 percent and the nominal interest rate was 12 percent.

Question

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 
-Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011,
A)the inflation rate was 8 percent and the nominal interest rate was 5 percent. 
B)the inflation rate was 9 percent and the nominal interest rate was 6 percent. 
C)the inflation rate was 8 percent and the nominal interest rate was 11 percent. 
D)the inflation rate was 9 percent and the nominal interest rate was 12 percent.

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. Given a real interest rate of 3% and an inflation rate of 8%, the nominal interest rate would be 11% (3% + 8%).