Year CPI Year CPI Year CPI Year CPI 1988 118.3 1993 144.5 1998 163.0 2003 184.0

Question

            Year   CPI                 Year   CPI                 Year   CPI                 Year   CPI

            1988   118.3              1993   144.5              1998   163.0              2003   184.0

            1989   124.0              1994   148.2              1999   166.6              2004   188.9

            1990   130.7              1995   152.4              2000   172.2              2005   195.3

            1991   136.2              1996   156.9              2001   177.1              2006   201.8

            1992   140.3              1997   160.5              2002   179.9

1988-1989= (124.0/118.3)*100)-100=4.80%

For the next two consecutive years inflation was

1990-5.4%                             

1991- 4.2%                              

1992-3.0%

1993-3.0%

1994-2.6%

1995-2.8%

1996-3.0%

1997-2.3%

1998-1.6%

1999-2.2%

2000-3.4%

2001-2.8%

2002-1.6%

2003-2.3%

2004-2.7%

2005-3.4%

2006-3.2%

Explanation / Answer

1. All the years 1989-2006 were years of inflation

Real interest rate= nominal rate-inflation

Real interest rate will decrease with inflation

2. No year was year of deflation. Real interest rate will increase if the year has deflation

3. Disinflation is a decrease in the rate of inflation

Years of disinflation

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