You are given information on the consumer price index (CPI), where thevalues given are those for December 31 of each year.YearCPI1989126.11990133.81991137.91992141.91993145.8a. What was the inflation rate in each year?b. Mary bought a one-year government bond for $400 on Dec. 31, 1991.She received principal and interest totaling $436 on Dec. 31, 1992. Whatwas the nominal interest rate Mary earned on the bond? What was the realinterest rate Mary earned on the bond?c. The nominal income of an employee in GM on Dec. 31, 1990 was$60,000. What was his real income?d. The employee's income increased by 2% in 1991. Was the employeebetter off or worse off at the end of 1991 than the end of 1990? Explain.

Answered: You are given information on the…

You are given information on the consumer price index (CPI), where the values given are those for December 31 of each year. Year CPI 1989 126.1 1990 133.8 1991 137.9 1992 141.9 1993 145.8

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 7E

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Question

You are given information on the consumer price index (CPI), where the
values given are those for December 31 of each year.
Year
CPI
1989
126.1
1990
133.8
1991
137.9
1992
141.9
1993
145.8
a. What was the inflation rate in each year?
b. Mary bought a one-year government bond for $400 on Dec. 31, 1991.
She received principal and interest totaling $436 on Dec. 31, 1992. What
was the nominal interest rate Mary earned on the bond? What was the real
interest rate Mary earned on the bond?
c. The nominal income of an employee in GM on Dec. 31, 1990 was
$60,000. What was his real income?
d. The employee's income increased by 2% in 1991. Was the employee
better off or worse off at the end of 1991 than the end of 1990? Explain.

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