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. If the nominal interest rate was 8 percent in 2010, then
A)the real interest rate in 2010 was 3 percent.
B)the real interest rate in 2010 was 4 percent.
C)Will's 2009 food expenditures in 2010 dollars amount to $5,800.
D)Will's 2009 food expenditures in 2011 dollars amount to $6,200.

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. If the nominal interest rate was 8 percent in 2010, then
A)the real interest rate in 2010 was 3 percent. 
B)the real interest rate in 2010 was 4 percent. 
C)Will's 2009 food expenditures in 2010 dollars amount to $5,800. 
D)Will's 2009 food expenditures in 2011 dollars amount to $6,200.

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. If the nominal interest rate was 8 percent and the real interest rate was 3 percent, it implies an inflation rate of 5 percent.