CPI (measured at the end Nominal wage rate (dollars) 10.00 11.00 11.00 Nominal i

Question

CPI (measured at the end Nominal wage rate (dollars) 10.00 11.00 11.00 Nominal interest rate (percent) 2000 2001 2002 Yearof each year) 100 120 114 4 14) The table above has information about the CPI, nominal wage rate, and nominal interest rate for 14 the country of Syldavia for the years 2000 to 2002. The reference base year is 2000. In which year was the real wage rate the highest? A) 2000 B) 2001 C) 2002 D) The real wage is the same in 2001 and 2002. It is higher in these years than in 2000 15) The table above has information about the CPI, nominal wage rate, and nominal interest rate for15 the country of Syldavia for the years 2000 to 2002. The reference base year is 2000. The real interest rate in Syldavia during 2002 was approximately A)2% B)-1% C) 9% D) 4% E)-2%

Explanation / Answer

Ans:

14) Option A - 2000

Computation of real wage rate

Year Real wage rate

2000 10 * (100/100) = 10

2001 11 * (100 / 120) = 9.17

2002 11 * (100/114) = 9.65

Computation of inflation rate

Year inflation rate

2000 (100-100) /100 = 0%

2001 (120-100) /100 = 0.2 or 20%

2002 (114-100) /100 = 0.14 or 14%

Real interest rate = Nominal interest rate - inflation rate

2002 4% - 14% = -10%

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