Question

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below.

	Year
	2011	2012	2013
Salary	$65,000	$72,000	$76,000
Consumer Price Index	226	230	235
Real Interest Rate	2.5 percent	2.7 percent	1.8 percent

Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. If the nominal interest rate for 2013 is 7.3 percent , then the consumer price index for 2013 is, in fact,

Answer 1

Nominal interest rate for 2013 = 7.3%

Real interest rate for 2013 = 1.8%

So the rate of inflation = Nominal - Real = 7.3-1.8 = 5.5%

So the CPI should also increase by 5.5% in 2013.

So the CPI in 2013 = 230 * 1.055 = 242.65