The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent.If the consumer price index was 200 in 2007,what would the consumer price index value be in 2008?
A)192
B)208
C)209
D)217

Question

Quizplus · Accepted Answer

To find the consumer price index value in 2008, we can use the formula:

CPI in 2008 = CPI in 2007 x (1 + inflation rate)

We are given the nominal interest rate and real interest rate, and we can use the relationship between these two to find the inflation rate:

nominal rate = real rate + inflation rate
8.5% = 4.5% + inflation rate
inflation rate = 4%

Therefore, the CPI in 2008 would be:

CPI in 2008 = 200 x (1 + 0.04) = 208

The Nominal Interest Rate for a Consumer Loan Lasting from 2007